1. Decide your sustainability standards
Before getting started, take a moment to think about what type of sustainable company you want to invest in.
If you already have a checklist in mind – that’s great! But if you’re unsure, consider the following questions to help you make a mini checklist:
- Are there any industries or initiatives you want to support? (e.g., protecting the environment, renewable energy, sustainable farming)
- Are there any industries or activities you want to avoid? (e.g. tobacco, mining, weapons)
- How important is the way a company treats its employees to you?
- How important is it for a company to invest in local charities and social enterprises?
- Do you mind if a company has had issues with harmful business practices in the past?
Having these factors in mind will help guide your decision-making process when looking at different organisations and whether you want to put your money into them.
2. Positive screening
Positive screening is when you choose to invest in companies that take active steps to benefit people and the environment. It’s sometimes referred to as “thematic” screening or “impact investing”.
The process of positive screening usually involves looking at a company’s environmental records, workplace practices, community work and whether they have been involved in any controversies.
This helps you get a better understanding of how a company operates and the type of impact it’s having in the world.
Through positive screening, you can select sustainable companies that align with your values. For example, if you wanted to focus on companies that produce materials for renewable energy.
Or perhaps, companies that invest in local social enterprises and community organisations.
3. Negative screening
Negative screening is when you avoid investing in certain companies that have a harmful impact on people and the planet. This process is also called “exclusion-based” screening or “socially responsible investing (SRI)”.
During the negative screening process, companies are filtered out if they are part of (or just associated with) industries that are considered unethical and unsustainable.
Some of the industries typically excluded through negative screening include:
- Alcohol
- Animal testing
- Fossil fuels
- Gambling
- Intensive farming
- Mining
- Polluting chemicals
- Tobacco
- Weapons
4. Look for ESG ratings
Considering a company’s ESG credentials can also help you find sustainable businesses to invest in.
There are several organisations that measure how sustainable companies are, by using ESG standards.
They award each company an ESG rating or score. One thing to point out is that each rating system is unique.
That means some scores may be out of 100 while others use a letter-grading or star-rating method.
Usually, a higher ESG rating means that a company is very sustainable. However, lower ESG ratings suggest that a company is less sustainable and has room for improvement.
Providers such as Sustainalytics, LSEG (previously Refinitiv) and S&P Global offer access to ESG ratings for free. All you’ll need to do is pop the company’s name into their search feature.
MSCI, Bloomberg and Morningstar also offer comprehensive ESG ratings and analysis for a fee.
Remember, a company’s ESG rating should form part of your complete analysis of how suitable a company is to invest in. It’s also important to do your own research into its performance to ensure it’s suitable for your portfolio.
5. Beware of “greenwashing”
Some companies invest a lot of money into creating the illusion that they’re more sustainable than they really are – this is called “greenwashing.”
They usually use vague terms such as “green,” “eco-friendly,” “sustainable,” “natural,” and “carbon offsetting” to market themselves as a sustainable option and boost their profits.
The only way to truly tell if a company is truly sustainable is by checking its policies and yearly reports. These should clearly explain their sustainability commitments and their impact on the planet.
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