I’ve always endeavoured to be an ethical and conscious citizen of the world – both socially and environmentally. Whether it was about creating a more equitable society or advocating a more sustainable lifestyle, everything from my work to my vote reflected that.
But strangely, this attitude did not extend to my money. Until a few months ago, my money and my values were two very distinct parts of my life. I saw no reason as to why the two should intersect.
This changed around eight months ago, when a conversation with my colleagues introduced me to the concept of sustainable finance and impact investing. They explained that if I started choosing where I invested my money more carefully, it was possible for my money to reflect my values too.
The timing was perfect, just two months before the annual portfolio review with my financial adviser. So, I jumped right in!
Step 1: Finding a starting point worked for me
I started, as most would, with a Google search – Sustainable Finance – and I was attacked by a torrent of jargon – green bonds, sustainable credits, ethical funds, SRIs and SIBs – it was a lot. But then, I came across ‘negative screening’ as a way of conscious investment.
Negative screening is a way to avoid investing in companies that score poorly on environmental, social and governance (ESG) factors. For example, you may choose to screen out any companies that have been involved with animal testing, have allegations of sexual harassment, don’t meet workplace diversity standards, emit large amounts or greenhouse gases or have high levels of wastage in their production cycle.
Sieving through all the ‘alternate investment products’ out there and overhauling my investment portfolio felt overwhelming, but this felt doable, even exciting.
Step 2: Screening my existing investments
So far, since my only goal was creating wealth, my advisor and I had selected low-risk, long-term mutual funds and stock to put my money in.
I dug out the last report I had received from my advisor and took stock of all my investments. Once again, I turned to Google, checking to see if there was any negative reporting about them in terms of environmental, social or governance factors. Right off the bat, I found red flags for 2 of the companies I owned shares of. They were ‘social and governance’ red flags, their workforce didn’t seem diverse enough and I read numerous reports of payroll relays, which made me uncomfortable. One of the mutual funds I was invested in included organisations involved in oil and petroleum as well as mining activities.
By the end of my deep dive, I felt miserable and dejected. I had crossed so many things off my portfolio, I had little left. I knew I needed some expert advice.
Step 3: Consulting an expert.
I set up a call with my advisor and told him about what I wanted to do. His immediate response was, “Really? The options in India are too limited to get good returns. You’ll have to compromise somewhere.” However, after everything I had learned about my investments, there was no going back.
I explained myself further – even if I wasn’t part of the solution, I definitely didn’t want to be part of the problem. I was happy to adjust my risk tolerance and even my returns to some extent, but I needed to make a change. He understood and said he’d get back to me in a week.
Here’s are my key takeaways from our next call
Identify your priorities
There isn’t a perfect company or fund out there. You can find a flaw in anything if you look hard enough. So first, identify what is truly important to you and what you’re willing to compromise on.
Trust the professionals
Huge banks and financial institutions hire fund managers to create ESG mutual funds for investors like me. Expert watchdogs ensure these funds are credible. Yes, they may be greenwashed but I need to have a little faith in the system.
Look at CSR
A lot of companies have identified their inadequacies and attempted to offset them through CSR activity. It’s an immediate show of good faith, since making bigger changes would take time, or in some cases, be impossible. Neutralising may not be best, but it’s better than doing nothing.
Find affiliates or subsidiaries
Big companies that are seen as safe investments but are in the oil or power sector sually have subsidiaries that work in renewable energy or with ‘greener’ affiliates. Look out for those.
Don’t ignore returns
While you’re focussed on your values, don’t forget that you’re doing this for a return and not for charity. Maintain a balance so that investing in this way is as sustainable for you as it would be for the planet.
Step 4: Identifying my values
I realised I couldn’t battle everything and my advisor’s recommendation to prioritise meant I had to do some introspection and decide what really mattered to me. I decided to stick to the ESG format to figure this out.
Between the E, S and G, I knew my priorities were S, E and G. There was no other way my inner Erin Brockovich would let me cut it. For the other details, I did what I do best, I used an excel sheet.
Disclaimer: This classification was based purely on my own personal beliefs and values. This table would look very different for every individual.
Step 5: Rebuilding my portfolio
After this, I started to slowly rebuild my portfolio.
I began with mutual funds, and found that there were a surprising number of ethical and ESG funds to choose from. Even though my advisor told me to ‘trust the professionals’, I did my due diligence and avoided ones managed by banks that had a known history of flouting ESG standards (like SBI). Instead, I went with the ones managed by banks that had relatively good ESG records, like Kotak, HDFC, etc. I shortlisted about six that were aligned with my priorities and my advisor helped me to pick the two I eventually invested in.
For stocks, I started with looking for the ‘greener’ subsidiaries of the big-name companies I was already invested in. Two out of five had convincing profiles so I went with those and another won me over with its CSR activities – uplifting the communities they worked with. I even retained one from my previous portfolio that I had earlier crossed out.
Through it all, I made sure to keep returns to the forefront.
Now that I have started aligning my investments to my values, I know it’s going to be an ongoing process because I will keep finding new things that I’d like to put my money into. What I’m truly grateful for, is that this whole journey has taught me to be more deliberate and cognisant with my investments. Instead of this being a passive adulting activity, it’s become something I’m actually passionate about and excited to take on!