The sustainable investing ecosystem
Environmental, social, governance (ESG)
ESG has become synonymous with sustainability. But, more broadly, it’s about evaluating companies from an environmental (E), social (S) and governance (G) perspective.
Socially responsible investing (SRI)
Socially responsible investing (SRI) is an approach to investing that considers both financial return and positive social/ environmental outcomes.
SRI practices include actively selecting or removing investments (negative-screening) depending on how a company ultimately affects the world around us. Investors might avoid stocks, ETFs or funds that engage in alcohol, tobacco production, gambling, weapons, animal testing, fossil fuel or human rights violations commonly because they are viewed to have a negative effect on society. Instead, investors might look for companies providing a net positive in the likes of education, social housing or environmental sustainability.
Impact investing is focused on supporting companies that aim to deliver a high degree of positive societal change and try to solve big challenges the world is facing. Being able to have clear and measurable goals, as well as quantifying impact, is at the core of these types of investments.
The value of companies with high ESG ratings for investors isn’t lost on the corporate sector. But unfortunately that can breed exaggerations or plain false portrayals of their sustainable credentials in a bid to boost the brand image.
This greenwashing has increased over the past few years, due to the rising demand for eco-friendly, sustainable products and transparency around company policies.
Savvy consumers are able to identify greenwashing practices through thorough research into each company and making sure that they live up to the claims they make.
Clean and green energy stocks are some of the most popular sustainable stocks Freetrade users are choosing to invest in.
Renewable energy stocks on Freetrade
Sustainable ETFs available to invest
in on Freetrade
Choose ETFs with a focus towards sustainability and social responsibility to provide broader market exposure to companies that have high standards of ESG and SRI.
Similar to an ISA, it’s not the pension itself that takes on a sustainable label, it’s what you put in it. And it’s that sustainability that might be most important to your long-term pension savings.
If a company is staring tougher regulations in the face because it is harmful to the environment, the society in which it operates, or isn’t governed well, that could mean a slow and painful demise.
The flipside of this is that companies leading the way in terms of ESG standards and running their businesses well over the years might even become more valuable the bigger they get.