What kind of sustainable investor are you?
“We’re not so different you and I…”
It’s a line used in countless movies – usually delivered by the villain to the hero. But when it comes to what separates you from other investors, there’s maybe a ring of truth about it.
Because, even if your individual goals differ from those around you, your hopes and fears will often look very similar, or at the very least overlap.
Whether you’re young or old, whatever walk of life you come from, the same questions crop up time and again:
“Can I save enough to do what I want in retirement?”
“Will I have enough money to maintain financial freedom?”
“How will the latest tax changes affect me?”
Why do I highlight this? Because sometimes there’s a misguided notion that by taking an interest in sustainability, or wanting your investments to take account of environmental, social and governance factors, you’re somehow walking another path entirely.
This couldn’t be further from the truth.
Whoever you are, it’s still a case of getting the basics right: setting up an ISA and making sure you make full use of your annual tax allowance; managing your pension contributions; ensuring you’re keeping on the right side of inheritance tax and capital gains.
But that’s not to say we’re all the same…
It's when we dig deeper into what motivates you that the differences emerge. ESG isn’t black and white, it’s better described as many shades of green.
So what kind of investor are you? Here are three examples:
The light touch
This investor is the lightest possible shade of green. You may not have considered ESG investing to a great extent (if at all) and may only be dipping your toe in the sustainability market. For you, the term ‘sustainability’ is probably more linked to a company’s long-term financial longevity. However, you’ll still want to invest in companies that are well managed and not at risk from future scandals.
The pragmatist
Most investors interested in ESG probably fall into this category. You’re interested in the investment potential of sustainability factors, but not at the expense of profitability.
The pragmatist investor wants to hold companies that do good. However, the primary focus is always the potential impact on long-term returns. Often the two overlap. For example, a company with poor governance is likely to be badly run, meaning it could end up destroying value in the future. Meanwhile, a business with inadequate working practices could be open to a greater threat of litigation or strike action.
The idealist
The darkest shade of green. Motivated by a desire to change the world around you, you want to support sustainability in how you invest. You might actively seek out companies that are ‘doing the right thing’, and consider divesting, or actively avoiding, business associated with unsustainable practices, such as oil and gas.
Even within this category, personal preferences can vary greatly. ESG factors are often deeply intertwined, but you personally might be more interested in finding strategies that are more focused on companies’ environmental impact, those that are conducting themselves in a socially responsible manner, or those that prioritise businesses demonstrating good governance.
It's all about you
At Betterworld, we have room for all shades.
Just recently, I was talking to the children of a client. They’re very proactive, in favour of investment strategies that target greener and socially responsible companies. Their parents, on the other hand, take a much more traditional approach, more concerned with a business’s financial metrics. There’s quite often a difference in the way generations view these factors. Neither approach is wrong. It all comes down to personal preference.
We focus first on those areas that unite our clients. What are your end goals? What does the ideal retirement look like and how can we help you save profitably for it? Can you afford to go on holiday a couple of times a year without worrying about the impact on other areas of your finances?
We get the basics right first, such as setting up ISAs and reducing your income tax liability, and help fill in the gaps in your financial knowledge to ensure you’ve got the expert advice you need.
Then, we dive into precisely where you want your money invested. How much of a focus do you want on sustainability – are you more of an idealist, or do you prefer a lighter touch. You may even want to avoid any specific ESG focus entirely. None of this is compulsory.
Your end goals may be the same as the next investor. You might have similar worries or even confusion over the next investment steps. We’re here to help you become the type of investor you want to be.