Sustainable Investing: How to make a positive impact with your money

First off, what does it mean to invest sustainably? Well, the broadest definition would be to choose to only invest in ways that align with specific ethical, social, or environmental goals.

And why do people want to invest sustainably? It could be for a whole range of reasons. But it all starts with working out what’s most important to them. For some, this can mean excluding companies that engage in activities that cause harm, such as tobacco, animal testing, weapons manufacturing, or fossil fuels. Others may want to take a more positive approach, by specifically investing in companies that are making a positive impact on society and the world around them.

But whatever those reasons, people want to feel their money is working hard on their behalf, and is capable of achieving good long-term returns. Although, for most people, performance is not their primary motivation for investing sustainably, that doesn’t necessarily mean they should accept lower returns. In fact, several studies show that companies with strong ESG performance outperform their peers over time.

These companies tend to be more resilient to economic downturns and regulatory changes. And, by investing in companies well-positioned to address global challenges like climate change and social inequality, investors can help make a contribution to a better world, while potentially participating in the financial rewards.

Fortunately, whatever your investment aims and objectives, at Amber River, we can choose from a suite of different investment portfolios, each offering a different approach while making sure your money is being invested in line with your values. Here is an outline of the different types of investments to consider.

• Ethical investments: These look to ‘screen out’ specific industries or companies considered unethical, such as tobacco, alcohol, or weapons. The goal is to only invest in companies aligned with specific moral or religious beliefs.

• ESG investments: These focus on investing in companies identified as having strong ESG credentials. The goal is to identify companies that manage ESG risks well, often leading to better long-term financial performance.

• Thematic investments: These look to invest in companies focused on specific themes or trends, such as renewable energy, healthcare or technology. The aim is to capture the long-term growth potential of specific sectors or industries.

• Impact investments: These investing in companies or projects that generate measurable social or environmental impact alongside financial returns. The goal is to address specific social or environmental problems, such as poverty, climate change, or healthcare access.

When we discuss managing sustainable investments with our clients, we use the United Nations Sustainable Development Goals (SDGs) as the starting point. The SDGs are a collection of 17 clear objectives designed to address global challenges, including climate action, eradication of poverty, good health and well-being, sustainable cities and communities, and affordable and clean energy, to name just a few.

We use the SDGs as a way of identifying which companies and funds are making a positive contribution towards achieving one or more of these 17 goals. By encompassing the SDGs into investment strategies, we are able to help our clients achieve financial returns while also making a positive contribution to reshaping the world.

But when we recommend investments, we want to feel confident that funds and companies deliver on their promises. This is important to help eliminate the threat of ‘greenwashing’, where companies make false or misleading statements about the positive benefits of what they do, in a bid to gain sustainability credentials.

So, to establish these credentials, Amber River has partnered with specialist investment companies, one of which is called Tribe Impact Capital. Tribe specialises in selecting investment holdings focused on having a positive impact on the environment and social issues. It carries out painstaking research and ongoing due-diligence for all the investments within the portfolios we may recommend. Every investment is carefully assessed for both financial and sustainability credentials. Importantly, Tribe doesn’t just employ negative screens, every investment opportunity is assessed through a clear investment and sustainability lens.

In our discussions with clients, we try to make them appreciate that the number of available funds that meet the criteria for inclusion into sustainable portfolios is much smaller than the total investment universe. This means that the number of investments available is more limited.

We try to remind investors that having fewer funds to choose from can – from time to time – mean that returns may be less than those available from a portfolio without any sustainability restrictions. That’s the nature of investing, and when other investments, fossil fuels for example, are doing well, this can mean sustainable alternatives suffer by comparison.

But of course, you really don’t have to take an ‘all or nothing’ approach. Some investors have a certain proportion of their total portfolio invested sustainably, while leaving the remainder free from screens or restrictions. At the end of the day, the amount you wish to invest sustainably depends on your own preferences and long-term objectives – we can help you find the right balance.

Although it used to be considered ‘trendy’ or niche, investing with a sustainability focus has become impossible to ignore, simply because from an investment perspective, it makes sense. Across the world, governments are putting pressure on companies and industries to take action, prioritise sustainable practices and help meet some of society’s greatest challenges. If you believe that making a positive contribution is worthwhile, and that investing can make a difference, the potential for doing good is there for all to see.