5 Steps to Green Investing Which Every Entrepreneur, Investor Should Know
This is a Guest blog by Harshit Garg, Head of Investments, Pyse
5 Steps to Sustainable Investing
Companies, governments, and people around the world are on a collective journey to net-zero and we’re all busy putting our resources to work. Your money is no exception!
Investing sustainably has the incredible power to create a cleaner and greener future while generating impressive financial returns.
However, the fast-changing ESG landscape is leaving investors spoilt for choice with the availability of an extensive range of sustainability investment approaches and options. Here are five steps to help you navigate your sustainable investing options and start investing today!
- Identify Your Emissions And Plan Your Shift to Sustainability
When investing sustainably, know your goals! Prior to investing, it’s critical to map your sustainability goals. The first step for this is to decide what is the total amount of emissions your day-to-day activities generate. The resources you have to reduce your carbon footprint can be usually summarised into two factors, behavioural and monetary. A behavioural shift, opting cycles/public transport, shifting to LED lights, etc, can lead to an immediate reduction in your carbon footprint. The monetary shift means you invest your money in companies/projects which perform well on sustainability parameters and contribute to carbon sequestration or even removal. A good way indicator of such activities is the ‘E’ part in a company’s ESG report.
- Decide Your Investment Goals and Examine Your Current Portfolio
Here are three common goals to help you define your approach to sustainable investing.
- You can approach sustainable-investing as a portfolio constraint to ensure that all your investments are in line with sustainable goals
- You can maximize your portfolio’s sustainability factors by investing in companies that are directly making a positive impact on the environment
- For investors looking to dive deeper into the world of sustainable investments, it may be a good idea to compare companies’ ESG ratings, identify funds that have lower ESG risks, and invest to reduce your exposure to long-term economic threats to companies’ health. The alternative to this is the invest in funds which allocates these funds directly to green activities
You’ve zeroed in on your sustainable investing goals and approach! The next step is to review your current portfolio and see how you can accommodate your sustainable investing goals into it.
You can begin by identifying the percentage of your portfolio that meets ESG criteria and the asset classes these funds lie in. Review your portfolio to see how the companies and projects you’re investing in are leading to climate impact, see if the holdings in your portfolio align with your low-carbon goals. Here’s where you’ll also have to start thinking about the companies that don’t align with your sustainability, how you’ll screen them out, and where you’ll reallocate the capital.
3. Screen the Sustainable Investing Options Available to You
When navigating the range of sustainable investing options available to you, focus on eliminating the bad with negative screening and emphasise on funds which display efforts towards a sustainable shift. Your portfolio can be divided into the following investment classes:
Equity Funds: There are multiple ESG funds in India, like SBI Magnum ESG Fund and Axis ESG Equity. These funds allocate your investments in companies which perform well on ESG parameters. The returns from these investments depends on the market movements, however the impact of such funds on the environment remains cloudy.
Alternative Investments: There are companies which allow you to invest in fixed income assets which are market independent. The environmental impact of such investments is usually much more direct, and visible to the investor. Pyse is a start-up which allows retail investors to own fractions of green assets like, solar plants, EVs, afforestation, etc. The returns on such assets are much more stable than ESG funds as these investments are asset-backed. The post-tax returns offered such sustainable assets can go as high as 12%.
4. Plan Your Transition to a Sustainable Portfolio
You’ve reviewed your sustainable investing goals, approaches, and available investment options. The next step is to begin planning your transition to a sustainable portfolio.
Let’s say a sustainable investment goal you’d like is to reduce the carbon-emissions of your portfolio. Upon assessing your current portfolio, you notice investments that are directed towards companies marked with high-risk carbon scores. You can now screen these companies out, reallocating your capital to ESG funds or green assets like the ones offered by Pyse, which lead to a reduction of carbon and carbon emissions.
As you transition, make sure to consider your overall risk and return objectives and any tax consequences of reallocating capital.
5. Track and Adapt
Now that you have changed your investment strategy to let your money grow while making an impact to help transitioning to a greener world, it is time to track the return and impact of these funds and assets. New technologies and investment opportunities present themselves every day for you to explore. Use this knowledge to update your strategy as required to make it sustainably and financially efficient.
Invest Sustainably for Urgent Climate Action
In our age of climate urgency, we’re all looking for ways to take action and make a positive impact on the planet. Investing sustainably can pave an easy, affordable, and profitable path to impactful climate action! Transform your portfolio with the steps outlined above and start investing sustainably today.