The Different Types of Sustainable Investing
The investment products mentioned and information in this article are for illustrative purposes only. They are not – and are not intended to be interpreted as – any form of financial or investment advice or recommendation.
Investing on its own can be a complicated subject to many. Stocks, bonds, funds, ETF, indices, yields, the terms go on and on.
It stands to reason that the subset of investing called sustainable or ‘ESG’ investing can often be just as confusing for the everyday person. But here at GreenGrowth, our mission is to make sustainable investing as easy and as transparent as possible, so that you know exactly how your money is being invested, and importantly the good it’s doing for the planet!
Paris Aligned Investments
You might’ve heard of the Paris Agreement, and it’s a big deal when it comes to fighting climate change. Its an international agreement, adopted in 2015 between 196 countries to commit to limiting global warming to 2 and preferably 1.5 degrees Celsius above pre-industrial levels. Fund managers ensure that the basket of equities or investment products they put together are meeting these targets.
These are perhaps the most controversial of all sustainable investments. ‘Transition’ products are those that invest in equities or industries that have committed to moving away from polluting activities like burning fossil fuels. However, this is controversial because if invested in these products, your portfolio may include oil and gas companies, mining companies, aviation and tech giants that have made such promises.
The issue here is that often companies set ambitious but often ’empty’ sustainability goals, with no plan in place on how to actually achieve them. These commitments can also be subject to something known as ‘Greenwashing’ whereby companies either falsify or manipulate sustainability data to make it look like they are more green than they really are.
If you haven’t guessed already, we’re a huge fan of thematic investments at GreenGrowth. Thematic investments are usually a passive or active fund, or ETF, that gives exposure to a particular industry, or industry subset that is combating climate change. Examples are clean energy, sustainable agriculture, water, circular economy and new themes are constantly being created giving exposure to emerging technologies like hydrogen.
We believe thematic investments drive the most change and have the biggest impact because they include companies that are actively working towards solving a particular climate issue. Investment selections are made on the ability of a particular company to solve a pressing issue, and not just a future commitment as with transition investments.
What also makes thematic investments exciting is that they can be tailored on a personal level to align with your personal situation or values. You can invest in ways that counteract the negative impacts of your lifestyle, which is something we strive to help you do at GreenGrowth.