A Beginner’s Guide to Responsible Investing

Looking to find out more about responsible investing? This quick guide could help you get started.
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Are you the type of person who likes to know that their money is doing good? Do you want to invest not just to try and make money, but to benefit the environment and society? The good news is that there are lots of ways to do exactly that!

The idea behind this is Responsible Investing - although the definition of what ‘responsible’ is will vary from person to person. To help give you a better understanding of what this can mean, we’re going to share the different ways that you can use responsible investing to match your investments with your values.

What are responsible investments?

Responsible investing means different things to different people. Maybe you simply want to avoid putting your money into companies that are actively harmful – think tobacco producers or weapons manufacturers. Or perhaps you’re looking for companies actively doing good – for example, those that are producing clean energy technology to help the environment or are taking certain actions to support  the people in society who need it most.

Whatever your version of ‘responsible investing’ there are options available to you.

How to start investing in responsible companies?

There are several ways that you can start dabbling in responsible investments.

If you know what you’re doing and have the time, knowledge and access to research to do it yourself, then you can pick your own investments and buy shares in individual companies that meet your criteria. Although this can be time consuming and laborious, if you have strict standards, it’s one of the best ways to ensure that your investments match your requirements.

Alternatively, if time isn’t on your side, then funds are another (often cheaper) way that you can invest in many businesses from all across the world. Funds include lots of different investments which are themed towards a specific goal – for example, you can find a wealth of ethical or socially responsible funds to choose from.

Or, if you want responsible investments without the hassle then you could look into ethical robo-investing. This way, a team of experts will look after your investments by doing all the research and screening to ensure the companies you’re invested in are acting responsibly – and what’s more, if they use active investment styles (like Wealthify do) they’ll constantly be monitoring each company to ensure their standards don’t slip. This means you have one less thing to worry about.

What do Responsible Investments do?

This type of investing isn’t just a nice thing to do. It can actually have a very real impact on many areas – depending, of course, on how your money is invested. Most responsible investments fall into three core categories, which are Environmental, Social, and Governance (ESG). Here’s a quick summary of the sort of things your investments could be helping with:

Environmental

  • Challenging businesses to follow greener practices and reduce their environmental footprint
  • Funding companies with a growth strategy that fits a low-carbon economy
  • Providing funding to companies to research and produce technology or services that help to fight against climate change

Social

  • Working with employers to make sure they pay their staff the Living Wage
  • Driving transparency on companies’ direct operations and supply chains
  • Promoting good working conditions, fair pay, and gender equality for workers

Governance

  • Pushing for businesses to become more transparent, accountable, and sustainable
  • Highlighting companies that are not doing enough to have a diverse and properly represented team
  • Using company annual general meetings (AGM) to challenge questionable practices

Attentive shareholders and fund managers can also use responsible investing to provide an additional layer of scrutiny. This approach can work to change business practices and targets, as they can use their shareholder power to help guide the company’s decision-making.

How do responsible investments perform?

There are a lot of ethical investments myths, with one of them being around their performance. But the good news is that responsible investments aren’t just about trying to do the right thing – historically they’ve performed pretty well too. In fact, according to a recent study done by the research group Morningstar, many responsible investments “outperformed their traditional peers over multiple time horizons.” [1]

That said, when investing your returns are not guaranteed and you could get back less than you put in with any type of investing. Past performance also doesn’t indicate how these investments may perform in the future.

Who is responsible investing for?

Anybody! There are no specific criteria you have to meet to want to invest responsibly. You could be looking for more ways to have a positive environmental impact, or you may just think that investing in companies with a focus on ESG could perform well in the long term. Whatever your reasoning is for wanting to invest responsibility, it doesn't have to be as complicated and time-consuming as you think.

That second reason is key really, because even if you’re in it to make a positive impact, actively managed sustainability-focused funds look for strong returns by investing in companies that are leading the way in sustainability in their sector, goods, and/or services.

However, it’s worth noting that the way these companies are chosen may vary, and they may not all be looking for ‘best in class’ companies, or even avoiding unethical companies completely. For example, certain responsible investment fund managers may choose to invest in an oil company that is doing a lot of work in delivering clean energy projects. The argument here is that these companies have strategies in place that will have a positive future impact, but there is a necessary transition period where their main business practice may not be considered ‘responsible’.

Invest responsibly without the hassle

If Responsible Investing sounds like it’s right up your street but you don’t know where to start, then why not let Wealthify give you a hand? Not only can you start with just £1, but our team of investment experts will do all the hard work for you – from doing all the research and due diligence to managing your investments and making any changes to your Plan if needed. Plus, if you want to take advantage of up to £20,000 tax-free investing, then why not look into a Stocks and Shares ISA?

Make your money matter with Wealthify.

 

 

  1. https://www.morningstar.co.uk/uk/news/214249/do-esg-stocks-outperform.aspx

Please remember that past performance is not a reliable indicator of your future results.

With investing, your capital is at risk, so the value of your investments can go down as well as up, which means you could get back less than you initially invested.

 

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