Sustainable Investing for a Better Future
In recent years, there has been an increasing awareness and concern about the impact of investments on the environment and society. Sustainable investing, sometimes referred to as socially responsible investing, ESG investing or impact investing, is an investment approach that focuses on aligning investment decisions with social and environmental values.
This approach considers not only financial returns - but also the environmental, social and governance (ESG) performance of companies in the portfolio. Many investors are looking for ways to invest in a responsible and sustainable manner that aligns with their values.
In this blog post, I’ll present a flowchart that outlines key steps that investors can take towards sustainable investing. The flowchart provided a helpful guide for you to easily begin your journey towards responsible investing. The first step is to identify your values, make them into your personal criteria and use tools like Sustainable Stock Finder.com
Investors are also guided on how to take action when necessary, including monitoring the performance of investments and taking steps to divest from companies that do not meet their criteria. By sensitizing investors to sustainability issues, providing data, standardization, sustainable investing is seen as a holistic and all-encompassing approach that is heading to become mainstream.
As responsible investing continues to gain traction worldwide, investors who take a long-term view on their investments and strategically align their portfolios with their values – have a higher chance of a positive return on investment financially as well as environmentally and socially.
The Basics of Sustainable Investing
Sustainable investing, also known as socially responsible investing (SRI), ESG-investing or SDG-investing, is an investment approach the seeks to generate long-term financial returns while creating positive social and environmental outcomes. Having a clear understanding of the basics of sustainable investing is crucial for investors who want to align their investments with their values. In the flowchart, you are guided to start by reading a book about sustainable investing that I have co-authored (Investér Bæredygtigt – og bliv fremtidens vinder på aktiemarkedet) you can find it here >>> before identifying your values. The I give you some tools in the flowchart to help you identify companies that match your investment criteria.
Identifying Your Values
In the flowchart I start by identifying your own values – this is because it’s a great guide when you start looking for companies to invest in. For instance, if you are passionate about environmental sustainability, you may want to invest in companies focused on renewable energy or waste reduction. If your values are more focused on social issues, you might want to look at companies that do serious work with diversity or human rights. That means that when identifying your values, its essential to consider which issues are important to you and what you want to make a profit on your investments.
The negative screening process involves identifying the sectors, products and companies that you as an investor want to exclude from your portfolio. This step requires careful consideration of factors such as human rights violations, environmental damage and diversity in executive management. Some common sectors that investors may choose to avoid includes sectors like tobacco, firearms, fossil fuels, gambling and fast fashion. In the flow chart, negative screening is if you and haven’t identified you values but know what you DO NOT want to invest in. If you already know which sectors, products and countries you DO want to invest in, you can skip the negative screening process and proceed to positive screening.
When using negative screening, investors need to be specific about what sectors, products and countries they do not want to invest in. This information may be used to filter out companies whose practices do not align with their personal values. Some tools may even allow investors to. Create a tailored. List of exclusion criteria that match their specific preferences.
Negative screening is an essential part of sustainable investing, allowing investors to eliminate companies or sectors they find objectionable. By using negative screening tools, investors can apply their values and principles to their investment decisions. Doing so, investors can feel confident that their portfolio is aligned with their values and financial returns as well as positive social and environmental outcomes.
What do you want to invest in?
Positive screening is the process of identifying companies that align and match with your own values and investment criteria. Positive screening is an essential step in the sustainable investment process and therefore also a step in the flowchart that I have created and you simply answer the question of what you DO want to invest in. Decide on sectors or industries that are aligned with your values, specific sustainable themes like renewable energy, climate change and social justice. For instance, if you want to invest in renewable energy you can focus on companies involved in wind, solar or wave energy or if you support gender equality investing in companies with diverse leadership, can be a good fit. Once you've identified relevant sectors you can then narrow down your search by selecting specific products or services that are aligned with your values and investment criteria and themes.
Evaluating sustainability performance
To ensure the companies meet your sustainability criteria, it is essential to evaluate their ESG (Environmental, Social and Governance) CSR (Corporate Social Responsibility) and SDG (Sustainable Development Goals) performance. This step is necessary to verify if the company operates in an environmentally and socially responsible manner while maintaining good corporate governance. In the flowchart, you are guided to use sustainability ratings, research and analysis of companies’ sustainability credentials – for ex. using the SDG Progress Tool by Sustainify >>>. Investors can this way make informed decisions about which companies are aligned with their values by evaluating companies using sustainability performance metrics.
Once you have identified your values and goals, the next step in the flowchart is to find companies that align with your investment criteria. SustaianbleStokFinder.com is a useful tool and resource for you to help you identify companies that prioritize the same criteria as you and at what level the company is at in the process.
The Sustainable Stock Finder allows investors to create a diversified portfolio that aligns with their sustainability issues while also generating strong long-term financial returns.
You can check out the SustainableStockFinder here >>>
What Do You NOT Want to Invest in?
Negative screening is an ethical investment approach that allows investors to exclude companies whose products, services, or practices clash with their values. It is a popular approach used by socially responsible investors who are committed to investing in companies, that align with their values while avoiding those that engage in activities that misalign.
The negative screening process
Keeping your portfolio aligned with your values
Investing in companies that align with your values is only one part in sustainable investing. Monitoring your portfolio and making sure it aligns with your values over time is equally important. There are specific tools and metrics that investors can use to track sustainability factors and the companies’ performance over time and help monitor your investments. The SDG Progress Tool from Sustainify previously mentioned, can provide investors with a rating that reflects the company's sustainability performance over time and give investors crucial insights about portfolio alignment or misalignment. This might lead to a need to take action.
Take Action If Needed
Taking action when necessary is part of responsible investing. If a company in your portfolio is no longer aligning with your values, it is essential to evaluate why and if there is an improvement needed. In the event of insufficient progress on sustainability, investors have several options, including selling their shares or try to use shareholder activism to influence company behavior.
Investing sustainably means incorporating sustainability criteria into your investment decision-making process but monitoring your portfolio is crucial and needed to assess if there is a continued alignment with your values. It requires tools and data, to track the performance on sustainability over time and with proper monitoring and evaluation investors can ensure that their investments align with sustainability values while also meeting any financial expectations.
With the provided flowchart it is now easier than ever to do sustainable investments using the tools provided by Sustainify and take one step at a time - happy investing!