Shouldn’t We All Invest Sustainably?

Shouldn't We All Invest Sustainably_

I often think about all the things our FIRE movement could accomplish together.

A brief look at our total combined net worth reveals that we have hundreds of millions of dollars between us.

Now that’s only the bloggers’ net worth. Imagine all the people who read our posts. If just a small part of those readers take action based upon what we right. Now we’re perhaps talking billions of dollars!

Why don’t we invest sustainably?

I see many bloggers writing about being frugal and living minimalistic, which in itself often is a way of being sustainable. I also see bloggers writing about sustainability – eating less meat, optimizing their transportation and removing plastic from their local neighborhoods.

However, many of those same bloggers don’t talk about investing sustainably. They usually just put their savings into a global or US index fund without considering which companies are part of the index.

The truth is, often those indexes are filled with oil, gas, tobacco, alcohol, gambling and porn companies. Not necessarily the kind of companies I want to invest in.

I’m not a saint myself. I also just pour my money into the index funds with the lowest annual fees.

So why don’t we invest sustainably? I don’t think it’s because people don’t want to. I simply think it’s a matter of lack of awareness and attractive investment options.

Why we should invest sustainably

I believe we have a responsibility towards other people all over the world and a responsibility towards the environment.

Many people live below the poverty line with no access to clean water and education.

We are destroying our planet with our endless consumption and resulting emissions of greenhouse gasses.

Money can move mountains. Companies act based on the interests of their shareholders. Now if those shareholders start demanding not only financial returns but also economic, social and environmental.

Even if you “just” invest in sustainable index funds and not directly in companies, you still send a signal to them that you don’t want to invest in them if they don’t live up to their economic, social and environmental responsibilities.

Now, I know you are all thinking: “What about the returns?”.

There’s been plenty of studies into how sustainable funds compare to “normal” funds, and the conclusion is almost always the same. There’s no negative downside when it comes to returns.

Morgan Stanley did a study on 11,000 mutual funds and concluded that “there is no financial trade-off in the returns of sustainable funds compared to traditional funds, and they demonstrate lower downside risk“.

Harvard Business Review equally made a comprehensive business case for sustainability. In the long term, sustainable companies will come out on top. And we are all investing with a long time horizon, right?

Why haven’t I invested sustainably yet?

I just revealed earlier that I haven’t converted my investments traditional index funds to investments in sustainable index funds yet.

Why is that?

The products available today in Denmark is not as good as I have wanted them to be. I have found that I pay too high annual fees compared to how sustainable the funds are.

What do I mean with “how sustainable”? Different funds have different methods of choosing their target investment populations. For example, passive funds might rely on a survey of the index companies based on a scoring system and choose the companies with the highest scores. The ones I have access to in Denmark are mostly passive – or the active ones are really expensive.

Shouldn’t I invest in international funds then if I can’t find good funds in Denmark? Yes, I could, but the tax regulation is very unfavorable in Denmark towards foreign funds. If you are fortunate to live in a country where you can invest in foreign ETFs (without being taxed differently), you could consider Vanguard’s ESG funds.

Aren’t all these arguments just bad excuses? Yes, they are, and I will move my investments to a sustainable fund soon.

I have decided to wait until new regulation for investments in Danish and international index funds is detailed and implemented some time in 2020.

When this happens, I will be able to choose one of the following options:

  • Invest in one or more Danish sustainable index fund(s)
  • Invest in one or more international sustainable index fund(s)
  • Invest in a mix of Danish and international index funds

What I choose will eventually come down to investment costs (once I know the new tax regulation in Denmark) and “how much sustainability” I get for the buck.

What am I doing instead then?

As long as I don’t invest sustainably, I have decided to donate money to charities I believe in instead. Eventually, I will do both.

For example, I donate 20% of my blog profits, I support two charities monthly (one for children in developing countries and one for the climate) and every year on Black Friday, I donate money to a cause instead of shopping.

Donating money to charities is not enough for me though. I genuinely believe we should start investing sustainably all of us. We have the money and that gives us power.

We need to invest sustainably for our own, our children (and their children) and all other people on the planet’s sake.

Your turn: I know I will reallocate all my investments to be sustainable soon. Will you?

6 comments

You may also like

6 comments

Anders November 22, 2019 - 10:15

Hej Carl,

Vigtigt fokus du er med til at sætte med bl.a. dette indlæg. Dejligt, at du på trods af at være tilsmilet i det kapitalistiske system, kan hæve dig over “mer-vil-have-mer”-rendestenen. Jeg prøver selv at finde en balance her i akkumuleringsfasen, men jeg skal være den første til at indrømme, at det er svært.

Går ud fra du kender til Storebrand fondene? De har et indeks med høj bæredygtigheds rating (højere end Sparindex DJSI), og til en lavere ÅOP (0,40%) end de fleste globale inv. foreninger.

Alt godt,
Anders

Reply
Carl Jensen November 22, 2019 - 20:55

Thanks, Anders. I also think it’s an important topic.

Are you thinking about this index fund: Storebrand Global ESG Plus A5?

I believe it’s better than investing in non-ESG-focused index funds, but I don’t think it’s more sustainable than the DJSI. First of all, they still invest in companies that generate <5% of their revenues from shady industries (tobacco, alcohol, gambling, etc.) - I would like a zero-tolerance policy. Furthermore, they state that they invest MORE in companies with a high ESG score and LESS in companies with low ESG score. This means that they do what most other passive ESG funds do, they just take the "best there is" and not necessarily picking the ones whose dedicated mission it is to be socially responsible. Does that make sense? That being said, I still believe it's better than investing in index funds that don't screen the companies at all.

Reply
Anders November 28, 2019 - 16:31

Yep, that is the one. Thanks for that info. I took their better ESG score and sustainability rating by morningstar as a marker for being better than DJSI.

But anyway, it’s a good alternative if you’re out for a cheap index fund with sustainability-“focus”. With ÅOP of 0,40% it’s even cheaper than SparIndex, Danske Invest and the other global funds.

Reply
Carl Jensen November 28, 2019 - 21:18

I fully agree! It’s definitely better to invest in that one compared to a “normal” index.

Reply
Roar November 21, 2019 - 22:26

Which climate charity are you donating to and why them?
Would you be interested in starting your own passive sustainability fund?

I would love to allocate my investments towards sustainability. So I look forward to reading your experiences!
I would be interested in details about annual fees, danish taxation and evaluation of sustainability as you allude to in this post.

Reply
Carl Jensen November 22, 2019 - 08:31

Hi Roar,

I’m donating to Greenpeace and WWF. While I don’t approve of all Greanpeace’s methods, I believe it’s important to have a climate watchdog. I donate to them because of their focus areas (woods, oceans, animals, etc.) and because I believe you should donate to larger organizations to get scale.

I don’t plan on starting my own fund – it’s simply too much work and I don’t have time for now. I might consider it in the future 🙂

I’ll update you on the sustainable investing!

Reply

Leave a Comment


This site uses Akismet to reduce spam. Learn how your comment data is processed.

I use cookies to make sure you have a good experience. You can opt-out if you are not fine with this. Accept Read More

FOLLOW MY JOURNEY TOWARDS FINANCIAL INDEPENDENCE

Sign up for my newsletter
- no spam, I promise!
SUBSCRIBE
close-link