They say, ‘money makes the world go round’ and, while for any individual there are much more important things, it certainly is the main motivator for businesses. This is especially true for large public companies, they want our money, so the things we spend on greatly influences their actions. So, how can we use this information to make a better world?
Previously we have covered ecological investing, and this is a great example of what is commonly called ‘Impact Investing’. This is where investments are chosen in order to benefit society, either socially or environmentally, while also getting good returns. Gaining popularity since the 1960s, socially-responsible investment funds (SRIs) started being offered, now we can screen funds for all sorts of issues. The rise of this type of investing is due to its popularity, for investors in the market at the moment, 85% say they are interested in more sustainable options. This has led to high performance as well; we have covered how ethical funds/ stocks have outperformed the market in recent years.
Now we have to ask ourselves ‘what are the most important issues to us?’ Originally ethical investing consisted of just avoiding the ‘sin sector’. This sounds evil but was just the name for companies in the tobacco, gambling and arms manufacturers. However, as we mentioned we can now find funds that focus of many different aspects of the market. The current collective term for these funds is ‘Environmental, Social and Governance (ESGs)’ investments. A major complaint about this style of investing is that it lacks diversity compared to a more generalist approach but the great thing about most ESGs is that it rotates companies regularly. They even select from industries previously avoided when their practices improve, so you can still get a good spread of stocks in these funds to spread the risk.
Our next task is to find these funds? As we mentioned before this kind of investing is extremely popular now so most of the ‘usual suspects’ in the investing world provide these kinds of funds. Some notable examples are ‘Vanguard’ and ‘Fidelity’. For a comparison of funds there are also a few research companies to use such as ‘Good With Money’ and ‘Morningstar’.
There you have it! Hopefully we have shown a completely separate side to investing, and how we can have a positive impact while still getting good returns. Compared to our usual investing that leaves nothing out of the index we choose this does increase the risk slightly but these are growing industries so can have higher returns and should still be safe as they cover lots of stocks. If you want to learn our investing fund criteria, make sure you look at our strategy ‘The Cappuccino Factor’.