Put your money where your mouth is on changing the world

Social, environmental issues influence how companies invest

The coronavirus has cast a spotlight on many social and environmental issues that you may feel strongly need to be addressed.

Picture: 123RF/MALP
Picture: 123RF/MALP

The coronavirus has cast a spotlight on many social and environmental issues that you may feel strongly need to be addressed, including inequality, poverty, pollution and destruction of natural habitats.

Besides using your voice of protest, you can use your collective economic power to help fix a divided society living in a world threatened by climate change, Ebeth van Heerden, advisory business development manager at Schroders, says.

Globally there is a growing movement among investors to invest in companies that make profits in a sustainable way that takes care of all stakeholders – their employees, suppliers, consumers and investors, Van Heerden says.

But when investment companies talk about “sustainable investing”, what do they mean and how are your investments actually used to bring about changes? Here’s a few terms you should know.

ESG integration: Many investment houses consider environmental, social and governance (ESG) factors when they analyse company’s shares or bonds. They scoring companies on each factor and invest in those with the best ESG scores.

The rating focuses on issues such as what the company is doing to limit its carbon footprint and fossil fuel usage; how the business impacts the environment; how it treats it employees and surrounding communities; the company’s remuneration policies and board independence or diversity, Van Heerden says.

Sustainable investing: Although sustainable investing involves taking ESG factors into consideration, a sustainable investment focuses on the companies that lead their sector on ESG practices and are more intentional about bringing about sustainability, Jon Duncan, head of responsible investing at Old Mutual, says.

Old Mutual recently launched a new fund that invests in SA’s best-ranked ESG shares. This fund is actively managed which means the fund manager chooses the shares rather than following an index.

Active stewardship: This is when investment managers engage with company management challenging it on its sustainability practices, Van Heerden says.

Managers should be willing to tell you how they as shareholders voted on issues like executive remuneration or carbon-related issues.

Screening: Some investments screen the shares or bonds to specifically exclude some, for example, companies involved in the manufacture of weapons.

Impact investing: Impact investing is about putting your money to work in a way that has a specific, measurable and positive benefit to society or the environment, while earning a return for you, Van Heerden says.

Impact investments are typically used by retirement funds and focus on infrastructure projects, small businesses, affordable housing, healthcare projects, food security and renewable energy.

Thematic investing: Funds like Schroder’s ISF Global Sustainable Growth Fund have a sustainable investing theme. Others focus more narrowly on, for example, the “green investing” theme by investing only in companies and technologies that are considered good for the environment, Van Heerden says.