Can investing be good for the planet?
06 April 2021
Awareness of the threats to our planet has never been greater. In all aspects of life, people are trying to limit their negative impacts on Earth, and do what they can to give back.
There are many highly valuable actions individuals can take to reduce their carbon footprint - for example, walking instead of driving to work or buying locally grown produce. However, a less obvious way you can contribute to environmental efforts is through being selective in where you invest your money.
In this article, we'll explore responsible investing, and how your money can benefit the planet.
Putting money into renewable energy is one way you can invest capital to benefit the planet.
What is responsible investing?
These days, you can invest your money in just about anything. While at first the choice may seem overwhelming, it's in fact a great thing. It means you can choose to only put your capital into companies that meet certain standards - this idea is at the heart of responsible investing.
Generally, there are three main criteria, known as ESG criteria, that investors such as Local Government Super asses to determine whether or not they think a company is responsible:
- Environmental impact - Is the business running its practices in a sustainable manner, or are they damaging the planet? Under this umbrella are factors such as where organisations source their energy, and how much waste they produce.
- Social impact - Organisations affect people as well as nature. Responsible investment will, therefore, examine the social consequences of the business' operation. This can include staff employment conditions in addition to the impact of business operations on local communities.
- Governance - The organisations' internal workings are the final area for scrutiny. Is executive pay in line with the rest of the pay structure? Is there evidence of bribery or corruption? Are the taxes they pay in line with legal frameworks?
How can I invest money to benefit the planet?
If you're interested in environmentally sustainable investment, there are a number of approaches you can adopt:
1. Invest in companies committed to green goals
Many companies have already woken up to the problems of global warming, and are altering their practices accordingly. However, not all are as quick or as willing as others. Look at investing in companies which:
- Use renewable resources and energy sources.
- Produce sustainable products.
- Purchase carbon credits to offset their emissions.
- Devote a portion of their revenue to supporting not-for-profits that work towards environmental objectives.
2. Invest in renewable energies
Renewable energy is growing in Australia, but still only produces around 15% of our total electricity requirement.
A powerful way to show support for green energy, and to allow continuing research into the possibilities of this exciting sector, is through the investment of your money.
Old wood logging should be avoided if you want to invest your money sustainably.
3. Avoid investing in industries that have known negative impacts on the environment
Some industries are simply worse than others when it comes to pollution, and should be excluded from your investment considerations.
Among the worst offenders are:
- Mining and ore processing: As well as harvesting metals, minerals and gems at an unsustainable rate, some businesses within this industry are particularly inefficient and produce large quantities of contaminated waste.
- Old growth logging: Trees are important in the fight against global warming thanks to their CO2 absorption capabilities. However, old growth forests, for example in East Gippsland, Victoria, can be of even greater value. These forests contain mature trees, which can be up to 1,000 years old (Future Directions International), and are able to permanently store CO2. Companies that fell these trees, therefore, are destroying these vital carbon sinks.
- Coal-fired electricity generators: Coal and gas still account for 85% for Australia's electricity, according to the Department of the Environment and Energy. By choosing not to invest your money in the continuation of this trend, you can send a clear message that we need to look to alternative sources.
Vote at shareholder meetings to encourage organisations to think of the planet in their operations.
4. Engage with companies you invest in
If you already have investments in a company that isn't actively harming the environment, but you think could do more - express your opinions. Clichéd as it may be, money talks and businesses are keen to keep their investors happy.
Similarly, as a shareholder, you'll likely have the opportunity to vote at meetings that will influence company governance. The voices of responsible investors can lead to significant change in terms of business practices and policies.
How does Local Government Super approach investments?
Local Government Super is certified as a responsible super fund by the Responsible Investment Association of Australasia (RIAA). This means that our entire fund is certified to be invested in a sustainable way. We assess the ESG credentials of all asset classes we invest our members' money in, avoiding those that don't meet our standards. We also ensure that the properties we directly own are managed in a responsible way.
To find out more on how you can invest your money for the benefit of the planet, get in touch with the Local Government Super team today.
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