How to align your investments with your personal values

Kristen Lunman. Photo credit: supplied
Kristen Lunman. Photo credit: supplied

This article is written by Kristen Lunman co-founder and general manager of Hatch - a digital investment platform providing Kiwis access to the US share markets.

In the second of a four part series Kristen shares her extensive knowledge about investing.

Just like our spending habits, our investment decisions can be a powerful lever for change. Sustainable investing is accelerating in popularity and is all about choosing to invest in companies and sectors committed to solving the world's urgent challenges, from human rights to pollution. 

Today, it's easier than ever to consider the kind of change you want to see in the world and put your money where your morals are. Many people are concerned about environmental issues and climate change, and if you’re among them, you might look for funds that focus on companies using clean energy. If gender diversity is an important issue to you, you may want to invest in a group of companies leading the way with females at the top.

Socially responsible investing is the process of investing to achieve positive social and environmental outcomes, while also looking to deliver good financial returns. The wealth industry is under pressure from everyday Kiwis to use their influence and smarts to take a stand on things we care about, from climate change to equality.

We've seen a collective wave of interest wanting our KiwiSaver funds free from companies that support animal cruelty, human rights abuses, or nuclear weapons manufacturing, and there are some ‘impact funds’ designed around socially responsible investing too.

Sustainable or ESG investing, an alternative to socially responsible investing, is the process of considering environmental, governance, and social (ESG) factors as part of investment decisions. An ESG risk score measures a company's behaviours and can reveal how resilient and future-proof an investment is. 

Sustainalytics's Company ESG Risk Ratings is a great starting point to get comfortable with a company’s ratings. In simple terms, the lower the ESG score, the more likely a company has adopted practices like equitable pay, transparent management or sound environmental practices, all of which ESG supporters argue, can help ensure longevity.  

For example, Lululemon has a Sustainalytics score of 13 and is considered low ESG risk, whereas oil and gas company Exxon has a score of 34 and is considered high ESG risk. 

ESG ratings aren't always as obvious as you might think. For example, Tesla has an ESG score of 31, likely due to the environmental impact of its batteries, poor scores on social matters, and Elon Musk’s unorthodox leadership. 

Meanwhile, Nike, a legacy brand that suffered in the 1990s for its sweatshop and child labour reputation, deserves recognition for its pursuit of a transparent, ethical supply chain. It has taken steps to use renewable materials, decrease carbon intensity, giving it a score of 15

Just reading or watching the news shows that human behaviour is rapidly evolving when it comes to things we know harm ourselves or the earth. Smoking is dropping off, and younger people are drinking less alcohol. People are moving away from petrol cars into electric vehicles, and governments are investing in green energy to heat our homes and workplaces. When less money flows into these sectors, businesses can't reinvest and innovate (both critical factors to choosing solid investments over the long term). 

The good news is investing in what you believe in couldn't be easier. If you want to take part in sustainable investing and spread your money across hundreds of businesses at once, a simple google of popular ESG exchange traded funds (ETFs) will show dozens that support the future you want to see. The myth that sustainable investing means sacrificing returns has been well and truly busted with ESG investments matching or surpassing their non-ESG counterparts over the past few years. 

Gone are the days when we had to shrug off concerns about 'doing good' when it came to putting our money to work. Modern approaches now enable us to support companies that have a positive impact on our earth. In fact, there’s never been a better time to make your money work both for your pocket and the planet.

This article was created by Hatch