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The concept of investing ‘sustainably’ is undoubtedly on the rise. Although it’s been a widespread concept amongst professional and institutional investors for some time, it’s now moving much more into the mainstream, with investors increasingly choosing sustainable funds as part of their wider financial planning, whilst also helping to find a way to create a better world (Schroders: Global Investor Study 2020).
There is good reason for this. The global population is expected to reach 9 billion by 2045 (United Nations, Global population: www.un.org/en/global-issues/populationd and www.un.org/en/global-issues/populationynamics). As people live longer, it stands to reason that more people will be affected by the way our nations are run, the state of our environment and the wellbeing of the people in it.
It’s all about the sustainability of our planet and our communities. People are increasingly alive to that, and the fact that investment can help sustainable companies develop, innovate and grow. It’s not only about investing in your own future – it’s about investing in positive change and progress too.
Demystifying
However, for some people, the idea of investing sustainably can be a bit daunting, so demystifying the world of sustainable investing is important.
Essentially, sustainable investing allows you to invest in companies that are better managed from an environmental, social and governance perspective. From tackling climate change to equal rights and animal welfare, it’s possible to choose investments based on specific personal values, in a way that could also help you achieve your long-term financial goals.
Sustainable investing also recognises that companies which aim to address environmental and social challenges could be those best positioned to grow, meaning that, although all investments carry an element of risk, it’s absolutely possible to invest with a conscience and make a profit at the same time (STERN: ESG and Financial Performance).
Terminology can often be confusing in this area, with sustainable investing sometimes being referred to:
• ethical investing
• environmental, social and governance (ESG) investing
• impact investing
• socially responsible investing (SRI)
• values-based investing
• conscious investing
• green investing
While these all broadly mean the same, there are some key differences in the way they work, which are important to know before you choose how to invest.
‘Sustainable investing, in all its guises, is becoming more mainstream,’ says Philip Kurtenbach, head of investments and wealth solutions at HSBC Channel Islands and Isle of Man. ‘Solutions are more accessible than ever before – through platforms like our International Investment Centre, for instance – and can play an important part of a wider financial plan, but it’s important too to have a diversified portfolio.’
‘Having conversations with experts will help demystify this area and give you confidence in knowing what is right for you in terms of risk, returns and alignment with your own personal values.’
Ethical investing, for instance, actively avoids companies or industries that have a negative impact on society and the environment. This is called negative screening.
ESG investing, meanwhile, actively selects companies that manage their environmental, social and governance risks well and create value for stakeholders. It’s less restrictive than ethical investing, as it considers companies that are adapting, such as oil companies that invest in clean energy.
And impact investing actively selects companies whose positive impact on the world can be measured. For example, those who generate a specific amount of recycling or save a certain amount of water.
Understanding the subtle different meanings and approaches can be a useful starting point to navigating the world of sustainable investing.
Guidance
The movement of sustainable investing into the mainstream has meant that such investments are now far more accessible than they used to be – they are by no means reserved for the very wealthy: they are very much on the radar of ordinary people wanting to build in sustainability in some form into their financial planning.
‘Our aim is absolutely to help customers in the islands get invested in sustainable funds,’ says Jordan Docherty, head of managed solutions, insurance and ESG, HSBC Channel Islands and Isle of Man. ‘It’s part of our wider commitment to play a role in the transition to net zero – but it’s also our responsibility to support customers and empower them to make the right choices, backed up by robust, solid advice.’
Getting good guidance and drawing on expertise is really important in helping to make sensible decisions in an area that might be quite new.
Speaking to a qualified adviser is vital, as it is with any investment, to help get you started. They can talk about investment needs and give advice around which sustainable investments might be most suitable depending on specific needs.
And a greater understanding of this area may very well help ensure that sustainable investing plays an increasingly significant part in your future financial planning in the years to come.
The International Investment Centre (IIC) was launched by HSBC a couple of years ago and is designed to open up a broad range of ‘self-executed’ investment opportunities to Jersey, Guernsey, Isle of Man and international expat customers. It allows customers to explore and take on investment opportunities when it suits them, and offers access to hundreds of funds – including HSBC and third-party funds, and, importantly, a number of ESG funds. To ensure the credibility of the ESG nature of those funds, they all adhere to HSBC’s own checks, whilst non-HSBC funds are also screened by product providers too, in line with international regulation.
