How to approach sustainable investing-old - Santander
How to approach sustainable investing
Once you’ve made a decision to get involved in sustainable investing and have some idea of what your priorities are, the next step is finding the right approach for you.
Every year more and more sustainable funds are being launched, and more and more investment providers are embedding sustainability into all that they do, giving investors an ever-increasing range of options to choose from. However, making comparisons requires some careful thought.
Sustainable funds, for example, can have a variety of labels (like socially responsible, green, or ethical) and there is yet no standardized way of rating them or verifying their credentials. These are a few pointers that may help you on your journey to finding the right approach for you, and that will be explained throughout this article.
1. Research your investment provider
There is much more to sustainable investment than the different types of sustainable funds you can choose from. It’s worth researching how committed any investment fund provider is to embedding sustainability across their business.
This can cover everything from what they require of their suppliers in support of sustainability goals, like using exclusively renewable energy resources, to diversity on their board, to the things they take into account as standard when investing your money, whether it’s in a fund that’s specifically labeled sustainable or not.
One important element is a dedicated sustainable investment research team, particularly where a provider has developed their own methodology with those attitudes, priorities, and values embedded throughout the investment process.
2. Consider your investment style
It’s possible to be a sustainable investor and follow a passive or an active management style. Whether one or the other or a mix of both is right for you will depend on your personal circumstances.
Passive funds track one or more market indices, such as the MSCI Environmental, Social, and Governance (ESG) indices. The sustainability credentials of passive funds rely on the decisions that third-party index providers have made. You would need to research the index provider’s approach to understand if you are comfortable that it aligns with your sustainable priorities.
Active funds are constantly analyzing data to make expert, researched decisions about which companies the fund invests in to meet the fund’s investment objectives. Sustainability credentials depend largely on two things. The provider’s depth of commitment to sustainability across its business, as we’ve already seen, and the specific investment objectives, priorities, and process for each individual fund it offers.
One thing you could look for is whether they use a sustainability ratings model of some kind and how that works. Another thing you can do is check on the fund’s largest holdings –this information is commonly made available and gives you the opportunity to look into the sustainability credentials of each of these holdings directly if you wish.
Regulators in markets around the world require funds to provide information to investors so they can make informed decisions on whether it is right for them. You’ll need to read this to research passive and active funds and it will include information on the charges you can expect to pay too.
3. Sustainable investment credentials may not be obvious
When you think of the types of companies you might expect to be held in sustainable investment funds, a few obvious ones likely spring to mind: manufacturers of renewable energy, for example. But many companies and industries are now incorporating sustainability into their culture, including the largest. Tech giants such as Apple and Microsoft integrate ESG factors into their business models. Another example is real estate. The sector is adopting various ESG-friendly measures into house building, such as using sustainable materials and renewable energy.
A look back at history
Looking back at the history of sustainable investing, particularly its roots, reveals examples of investing in companies in line with certain beliefs and values.
One of the earliest sustainable funds, PAX World, was set up in 1971 by two United Methodist ministers to avoid investing church funds in companies that were contributing to the Vietnam war.
The idea of socially responsible investment (SRI) has continued to develop ever since, often driven by political movements. Wide-spread disinvestment of funds from South Africa in the 1980s is considered to have been instrumental in bringing about the end of the apartheid regime.
As sustainable investment moves from niche to mainstream, the range of investment options, what they invest in and their providers will continue to expand. It’s important to know what to look for when making investment decisions.
You can always ask for help
If you're unsure about choosing sustainable investments, you may want to speak to a professional. As a Private Client, you have access to a dedicated team of professionals to help manage your financial strategies, including a Santander Investment Services Financial Consultant. They can help you to work through your priorities and do your research, so you can be confident you are investing into options that are suitable for both your priorities as a sustainable investor and your broader financial planning needs.
This article is intended for informational purposes only. Readers should consult their own financial advisers, attorneys or other tax advisors regarding any financial or tax strategies mentioned in this article.
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