Last year, I asked the question: “Shouldn’t we all invest sustainably?”.
Shortly after I held a public presentation on FIRE and investing in general. Here I also touched upon the subject of sustainable investing.
However, there is just one problem.
I don’t invest in any sustainable assets.
After the presentation, I felt like I had to do something. Otherwise, all the talk was just empty words.
Therefore, I have now decided to invest most of my money in sustainable assets. I am super excited about it!
My new sustainable investment strategy
I now put 80% of my monthly investments in sustainable index funds.
Why not 100%? Because I like to be exposed to Asia. None of the sustainable index funds currently available in Denmark have this focus for Asia.
I have decided to invest 80% of my monthly investments in the index: “Sydinvest Morningstar Global Markets Sustainability Leaders“. It’s a brand new index fund by the Danish investment company, Sydinvest.
The index fund tracks Morningstar’s Global Markets Sustainability Leaders Index. The fund is passive and invests 90% of the assets in companies from that index.
Why have I chosen this index fund? There are several reasons:
- It has the highest sustainability rating by Morningstar (5/5)
- Its sustainability score is in the top 1% of 1,000 global index funds
- The environmental and social ratings are high with governance being above average
- The annual fees amount to 0.61% compared to my old global index at 0.48%
- It delivered a return of 26.5% in its first year (I know I shouldn’t look at historical data though)
Previously, my strategy wasn’t focused on sustainable investments. This was because the funds were not ambitious enough. With this index fund, I have finally found one that is.
What about the remaining 20% then? I still invest those in an index fund without an ESG focus. That fund has a sustainability score of 3/5. It’s not ideal, but it’s my strategy for now.
If there had been an Asian fund with a dedicated ESG-focus, I would have chosen that one though.
Why we all need to invest sustainably
Capitalism has been great for us.
Capitalism has taken millions of people out of poverty. Capitalism has given us great inventions. Capitalism has increased the average life expectancy by decades.
However, capitalism has also caused a world that is out of control.
We are using finite resources at a faster rate than they can be replenished.
At the end of July each year, we have already exhausted the biological resources our planet can renew within a year. And that trend is moving in the wrong direction.
We are seeing climate change making parts of our world uninhabitable at a fast pace.
We are seeing companies exploiting cheap labor in developing countries.
We are seeing income distribution being increasingly skewed. The rich get richer.
Our current capitalistic system hasn’t been able to fix these problems. It will not be able to fix this if we continue the things as they are.
Changing the way we invest is an important place to get started.
In simple terms, investing in companies is like putting a vote on them. If you take away your vote (and their financing), they will have a harder time investing in future growth.
If we all start channeling our funds to companies that have high environmental, social and governance standards, the remaining companies will eventually change their behavior.
Why it makes financial sense to invest sustainably
Investing sustainably is not only good for the world. It might also be good for your net worth.
Several studies show that investing sustainably has a positive effect – and at least not negative – on returns.
McKinsey & Co published a report on sustainable investing becoming mainstream indicating that it appears to have a positive effect, if any, on returns.
Harvard Business Review found that 48% of people who invest sustainably do it because of a positive impact on financial performance.
In addition to good returns, it makes long-term financial sense to invest sustainably. You want to make sure there is a decent world to live in where you can actually use your returns.
Lastly, we will see a shift towards sustainable investing. 67% of the millennial population is investing sustainably in 2019. In 2015, that figure was 50%. It’s growing fast and all the big funds are coming out with several sustainable investment products. This also means companies increasingly will focus on sustainability. The winners of tomorrow are sustainable – and that’s where your money should be.
After reading this, you might be left with the question: “Why should I start investing sustainably?”.
The world is better off in many ways and you make equally good or better returns. The real question is therefore “why should I not start investing sustainably?”.