Sustainable investing refers to types of investments that aim to generate long-term financial returns while advancing sustainable outcomes.
Here, we look at:
Approaches to investing sustainably
Is sustainable investing right for you?
How can you identify sustainable investments?
Approaches to investing sustainably
There are many different approaches to investing sustainably, each with its own objectives.
Before you invest, take the time to understand how a sustainable investment is measured and whether it aligns with your objectives and financial goals.
For example, you may have heard of ESG investing, which stands for environmental, social and governance (ESG):
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Environmental issues – consider the impact a company has on the environment, such as how energy efficient they are
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Social issues – consider how a company supports its employees, clients, and communities, such as their respect for human rights
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Governance issues – look at how a company is managed, such as its business ethics
ESG investing differs from ethical investing, which is another approach. Ethical investing actively avoids companies or industries that have a negative impact on society or the environment.
Others may also invest in assets – not just companies – that do not form part of a sustainable investment strategy.
Is sustainable investing right for you?
Some investors put their money into sustainable investments to help them meet their financial objectives.
Environmental, social, and governance issues can impact share prices – both positively and negatively. Taking these factors into account when investing could increase the resilience of your investments.
It’s important to consider that:
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ESG and sustainability measures, including ratings and scores, are used to assess investment risk, which means that investment decisions will be different when compared to non-ESG investments
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An ESG and sustainable portfolio may produce different returns to those that don’t consider these factors
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There’s no guarantee that investing in an ESG and sustainable portfolio will match your personal ESG and sustainability ambition
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Some funds may invest in companies that aren't defined as sustainable today but are trying to be in future
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Some funds may currently invest in assets that may not be seen as sustainable, such as fossil fuel companies
Remember, the value of your investments can fall as well as rise, and you could get back less than you invest. All investments should be seen as a medium to long-term commitment, meaning you should be prepared to invest for at least 5 years.
How can you identify sustainable investments?
The Financial Conduct Authority (FCA) is introducing several measures to give you more information about sustainable investment products.
What does this mean for you?
The new rules mean some investment funds will have to change, which may include removing words such as ‘sustainable’, ‘green’ or ‘low carbon’.
Fund managers will be making these changes between 31 July and 2 December 2024.
From 31 July 2024:
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You’ll start seeing labels on investment funds which have sustainable characteristics and choose to apply a label
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You’ll be able to access information about what the goal is, the approach to achieving it, and its progress towards it
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If a fund is making sustainability claims without a label, you’ll have access to information explaining why and how it’s invested
These labels aim to help you make informed investment decisions and you should start seeing the information on your provider’s platforms.
Please note that funds domiciled overseas are not currently subject to these regulations.
The FCA also plans to extend these rules to portfolio management services from 2 December 2024, although the exact details and start date are subject to change.
Sustainable investment labels
There are 4 labels to help you recognise investment funds with different sustainability goals:
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Sustainability Focus: invests mainly in assets that focus on sustainability for people or the planet.
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Sustainability Improvers: invests mainly in assets that may not be sustainable now, with an aim to improve their sustainability.
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Sustainability Impact: invests mainly in solutions to sustainability problems with an aim to achieve a positive impact for people or the planet.
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Sustainability Mixed Goals: invests mainly in a mix of assets that either focus on sustainability, aim to improve their sustainability over time, or aim to achieve a positive impact for people or the planet.
Investment providers can choose to use any of these labels if their funds meet the criteria.
For more information, visit FCA: Sustainable investment labels and anti-greenwashing.
Today, we finance a number of industries that significantly contribute to greenhouse gas emissions. We have a strategy to help our customers to reduce their emissions and to reduce our own. For more information visit www.hsbc.com/sustainability.
This article was last updated:27/08/2024, 04:29
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