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5 common sustainable investing questions with surprisingly simple answers

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1. Is investing in sustainable funds riskier?

No, every investment fund has an associated risk level, regardless of whether it’s sustainable or not. However, the sustainable investment market has grown and evolved in the last decade or so, there are now investments across the risk/return spectrum. Today sustainable funds are just like any other funds, there is always an element of risk when investing, but it’s up to you to decide on your risk appetite and what you feel comfortable with.

If you only want safer, low risk/return investments, you can still do it sustainably and help the planet at the same time.

 

2. Do you have to sacrifice returns to be sustainable?

No. It’s a complete myth that you have to choose between having a positive impact and making a decent return. There used to be some truth in it – when the only well-known positive options were ‘ethical funds’ which simply blacklist oil, guns and other sin stocks – but there are many more options these days.

In fact, the myth may be beginning to turn on its head. Funds research giant Morningstar reported that both active and passive sustainable funds have on average done much better than conventional funds over three, five and ten years. In their words, sustainable investors “were less likely to miss out on returns than if they had invested in traditional funds”. You can’t argue with the facts! Although it’s important to keep in mind that a fund’s past performance is not an indicator of future returns and there is always risk involved with investing.

 

3. Do you need longer timeframes – is retirement too late?

Sustainable investing has become popular with all ages, and rightfully so. Granted, younger generations are “pushing a bit harder and asking more questions”, according to financial advisor Darren Thomas, but many retired clients also find sustainable investments to be completely suitable within their drawdown portfolios. Suitability depends more on the individual investment, for example investing in bonds or equities– it’s best to discuss this with an advisor if you need help figuring out if an investment is suitable for you.

 

4. How can you tell if investments are actually sustainable?

Okay, so this answer is less ‘surprisingly simple’ than the rest because a lack of industry wide standardisation on different investment terms like ‘ethical’ or ‘sustainable’ muddies the waters. However, the key lies in who you get your investments through, how they are judging and analysing that sustainability as well as how transparent they are about what the money will be invested in. Do ask these questions if the answers are unclear. Some investment platforms or fund managers have tools or reports to show you where your money is going. Triodos Impact Investment Funds list all the companies they invest in and why they have been chosen. Detailed annual reports of the impact the funds have achieved are also available.

You can also check ratings websites like Morningstar which track, assess and rate the sustainability of thousands of investment funds. Simply search for your fund and look for the sustainability rating out of 5 globes. Alternatively, independent organisations such as UKSIF (UK Sustainable Investment and Finance Association) via its Good Money Week campaign provide information and resources that are really helpful.

5. Is there much difference between impact investing and ethical exclusion?

Yes, so its key to do your research well in order to feel assured you know what you’re investing in and what it aims to do. There is a lot of ‘greenwash’ in the industry and its important to note that impact investing aims to generate a positive and measurable social or environmental impact alongside a financial return. This is the space where Triodos is active in and as such actively includes companies that are positively contributing to a more sustainable future into its funds. Whereas exclusions are all about investing in ‘everything except for…’ such as everything except for tobacco, everything except for guns and bombs etc.

This can mean that funds branded as ‘sustainable’ that aim for positive impact sometimes include oil companies like BP or Shell.

 

Interested in sustainable investments and want to know more about how to get involved? Head to our Sustainable Savers pages where you can read loads of tips, hear about what other investors have done, and see recommended fund lists and more. Plus check out Triodos Bank to see which sorts of organisations your investments could support. However, please do note that these investments are long-term (five years plus) and your investment could go down as well as up. This is not financial advice and if you’re unsure which investment is right for you, ask an independent financial adviser.



  

 

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