Many investment decisions require compromises or trade-offs. Not investing, for example, carries the risk that inflation will erode the real value of assets, while investing carries various degrees of market risk. Those investing for retirement who are inclined to make sustainable choices in their lives may also find these preferences and their investment requirements at odds.
Many sustainability investment funds define and invest only in “good” companies or define and exclude specific “bad” companies. These approaches can compromise the funds’ ability to adequately diversify or capture the return available from the broader market—and often demand a higher fee.
Options when investing for retirement
But as companies are required to be more open about their reporting of sustainability issues such as carbon emissions, fossil fuel reserves and even waste management, investment strategies can be more sophisticated in their approach to sustainable businesses. That approach might be relatively light touch, such as through greater engagement with company management on sustainability issues or through more robust shareholder activism.
Better reporting also enables companies to be graded more accurately and transparently on sustainability issues, which in turn enables more sophisticated management of investment trade-offs.
Such strategies can offer market-wide diversification, target higher expected returns, come with relatively low costs and demonstrate a reduced impact on the environment and its inhabitants.
If you are interested in talking to us about sustainability investing, please contact us.