Did you know that your money can grow stronger by investing in companies that focus on sustainability by having a positive impact on society and the environment at large?
By putting your money in companies that make their products out of sustainably-managed forests, use renewable energy sources, and don’t discharge wastewater into water sources, you’ll be assisting save the earth from environmental destruction while making a profit.
This investment approach is known as sustainable investment management and it aims to generate positive externalities or benefits for society at large beyond the companies’ own profits.
So, if you are looking to get started with sustainable investment management, then this article is for you. Here is a detailed breakdown of all you need to know about how you can reduce your carbon footprint while generating wealth.
Why Practice Sustainable Investment Management
There are a few reasons why you might want to get into sustainable investment management.
One reason is that they’re trying to address some serious environmental issues.
Another reason is that depending on where you live, the level of government support given to green initiatives, and your personal outlook, it can be difficult to know where your money is best spent. But you’ll find that green companies are often transparent and honest about their operations. As such, you’ll be in the know regarding where your money is being spent.
Another reason is that they might be undervalued and are a good investment opportunity. This can be especially convenient if you’re looking to get in on the ground floor of investing, not just sustainable investing. These companies are often small, start-up companies that are still trying to gain traction and have the potential to make your portfolio more profitable.
How to Start Investing in Green Companies
The term “invest in green” has become synonymous with investing in companies that are focused on environmental, social, and corporate governance (ESG) compliance. While this is a useful way to identify green companies, it is not the only way to find them.
There are many other strategies that can help you know what companies to invest in. They include:
Know the Different Types of Green Investment
Investors looking for sustainable companies should first understand the different types of sustainable strategies available. In order to qualify as a green company, a company must meet one of the following examples
- Be 100% powered by clean, renewable energy
- Use biological resources to produce essential products like food, pharmaceuticals or electronics
- Operate in a country with a high Human Development Index and where certain industries, like mining, are not allowed to operate
Factor in Their Reputation
Invest in companies that have a proven track record of using sustainable practices to produce their goods and services. This can be anything from a local small business that produces sustainable products to a global corporation that is actively working towards being carbon neutral or achieving zero emissions.
While strict certification can be bought and sold like any other stock, a company’s reputation for sustainability is what really counts. This is important because it will give you solid proof that the company is doing what it says it is doing.
Is The Company Innovative in Its Sustainability Approach
You will also want to invest in companies that often set the standard for the industry. Start by checking the Organic Trade Association (OTA) which lists certified organic companies as being at the cutting edge of sustainability.
Recycling rates are another important indicator. Does the company accept returns for its products? Do customers have a convenient way to turn their old clothes and other unsellable items into cash? Those are all good signs that the company is taking steps to protect the environment.
The Bottom Line
As you might have learned by now, sustainable investment management isn’t about picking stocks; it’s about picking projects.
However, not all green companies are created equal, but there are plenty of ways for an investor to identify good ones on their own without hiring an advisor as you can see from the points above. All you need to do is understand the benefits, check out some options, and choose the right ones for you.
