I’m working on a solution to make responsible investment options easily accessible and am quite knowledgeable in the subject matter.
There’s a distinction I would say between sustainable investments, responsible investments and impact investments.
Sustainable investments are companies that are genuinely sustainable, eg leaders in reducing carbon emission and setting up entire supply chains that are sustainable, as well as selling products that create positive externalities and treat their workers fair, as well as have good governance. If that’s your criteria and they’re very strict, your investment options are limited towards actively managed funds (expensive and underperform Index funds, less liquidity, less diversification opportunities etc) and will most likely focus on the EU only. Performances of these funds is hard to compare, because they cannot follow common indexes and global benchmarks. And there’s no unified standard for what is deemed sustainable. I know a few advisors specialised on this.
However if a global index investment strategy is important to you (in my opinion this is very important because you need a sound investment strategy), then you should adopt a standard towards strong exclusionary criteria. In this case if you are familiar with ESG and SRI investments, I call these responsible investments but the industry already classifies many of these as sustainable. Some have stronger and other weaker exclusionary criteria (I can help you here) . Exclusions are towards harmful industries, coal, controversial weapons, tobacco, oil sands etc and towards companies that are below a an acceptable ESG or SRI score. Often you will find that many neutral businesses remain (Roche, Microsoft) and some you might personally not like, such as PepsiCo (you’d be surprised to learn how much they’ve done to decorbinise their operations, source all materials used sustainable and have many women of their board and their board is independent etc). However the reduction in harm here are already enormous. I can send you info on this. In this bracket you also find outperformance, so ESG and SRI versions of common indexes and funds do generally better than their non-ESG/SRI counterparts. ESG/SRI are probably closest to a comparble industry standard.
Lastly there’s impact investing, but I believe here a profit motive cannot be the primary driver, because many diversification and technical strategies for portfolio building cannot be impented. Impact has very different and wide ranging definitions and is very hard to quantify. And for this I don’t know of any commonly acceptable standards related to business practices, possibly using SDG goals as criteria, which some do. I would argue impact investing is closer to philanthropy and charitable work than it is to investing for profit.
And here would be my personal recommendation, donate a portion of your income to EA charity, invest the rest in ESG/SRI investments for financial stability and retirement. I believe this way you habe the greatest impact while minimising harm related to your investments without comprising personal financial stability.
Hey,
Please apologize my late reply. It seems as if I missed notifications to this post. Thanks for your thorough reply.
I would highly appreciate your input on global index investment strategy. Are there some indexes with rigorous exclusion criteria that you could recommend?
Hi Nils,
I’m working on a solution to make responsible investment options easily accessible and am quite knowledgeable in the subject matter.
There’s a distinction I would say between sustainable investments, responsible investments and impact investments.
Sustainable investments are companies that are genuinely sustainable, eg leaders in reducing carbon emission and setting up entire supply chains that are sustainable, as well as selling products that create positive externalities and treat their workers fair, as well as have good governance. If that’s your criteria and they’re very strict, your investment options are limited towards actively managed funds (expensive and underperform Index funds, less liquidity, less diversification opportunities etc) and will most likely focus on the EU only. Performances of these funds is hard to compare, because they cannot follow common indexes and global benchmarks. And there’s no unified standard for what is deemed sustainable. I know a few advisors specialised on this.
However if a global index investment strategy is important to you (in my opinion this is very important because you need a sound investment strategy), then you should adopt a standard towards strong exclusionary criteria. In this case if you are familiar with ESG and SRI investments, I call these responsible investments but the industry already classifies many of these as sustainable. Some have stronger and other weaker exclusionary criteria (I can help you here) . Exclusions are towards harmful industries, coal, controversial weapons, tobacco, oil sands etc and towards companies that are below a an acceptable ESG or SRI score. Often you will find that many neutral businesses remain (Roche, Microsoft) and some you might personally not like, such as PepsiCo (you’d be surprised to learn how much they’ve done to decorbinise their operations, source all materials used sustainable and have many women of their board and their board is independent etc). However the reduction in harm here are already enormous. I can send you info on this. In this bracket you also find outperformance, so ESG and SRI versions of common indexes and funds do generally better than their non-ESG/SRI counterparts. ESG/SRI are probably closest to a comparble industry standard.
Lastly there’s impact investing, but I believe here a profit motive cannot be the primary driver, because many diversification and technical strategies for portfolio building cannot be impented. Impact has very different and wide ranging definitions and is very hard to quantify. And for this I don’t know of any commonly acceptable standards related to business practices, possibly using SDG goals as criteria, which some do. I would argue impact investing is closer to philanthropy and charitable work than it is to investing for profit.
And here would be my personal recommendation, donate a portion of your income to EA charity, invest the rest in ESG/SRI investments for financial stability and retirement. I believe this way you habe the greatest impact while minimising harm related to your investments without comprising personal financial stability.
Hey, Please apologize my late reply. It seems as if I missed notifications to this post. Thanks for your thorough reply.
I would highly appreciate your input on global index investment strategy. Are there some indexes with rigorous exclusion criteria that you could recommend?