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Green investment – what does it actually mean?

A short guide to some of the terminology used within our market and what it means in practice for investors.

Many of us have investments such as in an ISA or a pension. Yet most of us don’t know where that money is actually being invested. Ethical consumers consider and make careful decisions about the source and production of the products they buy; why should it be any different when considering the impact of our savings and investments? How is your money being used? Where is it being invested? Could it be supporting unethical activities that you disagree with, such as ones that are detrimental to people’s quality of life, wider society or the environment?

Even if you have a relatively small amount of money to invest, green and ethical investment options allow you to make a positive difference with your money, as it is invested in companies delivering on social and environmental performance, or innovative work in the field of sustainability.

For a first time investor though, choosing to invest ethically can be tricky as there are many terms and sometimes some off-putting jargon describing the different investment products in what is a growing market.

The good thing is that you don’t need to be a financial expert to bank ethically. A simple option is to move your savings and investments to a bank with a more ethical or green approach. Investing can mean selecting a green or ethical investment fund – perhaps as a first option choosing to make the most of your Stocks and Shares ISA allowance for tax-free returns (although remember that the favourable tax treatment does depend on your individual circumstances and may change in future,) or investing directly in a company itself.

When it comes to green and ethical investments understanding some of the basics and the terminology will help if you want to see a brighter future and make a positive impact with your money.

At Triodos Bank we firmly believe in being transparent in all we do and we are committed to helping people use their money for positive change. We have therefore put together this short guide to some of the terminology used within the green and ethical investments market and what it means in practice for investors.

Green investments

The phrase ‘green investment’ is arguably still the most commonly used term to describe financial products that take into consideration issues wider than purely financial performance, such as environmental and social concerns. Historically, ‘green investments’ was a phrase used to describe investments that focused mainly on environmental sustainability; however, over recent years with issues becoming more wide ranging, to include social and corporate governance, the market for these investment products has grown and so have the names to describe them.

So while ‘green investments’ is still widely used by people, it has been joined by others including ethical investment, socially responsible investment or sustainable and responsible investment. In fact the phrase green investment has almost come full circle in that increasingly it is being used to mean products with a solely environmental focus rather than some of the other wider areas such as social and corporate governance factors in relation to the companies being invested in.

Green investments could, for example, invest in companies involved in sustaining water resources, pollution control or reduction, waste management and alternative or green energy production.

Sustainable or Socially Responsible Investment (SRI)

Sustainable or Socially Responsible Investment is a wider term used to describe the area where financial objectives of an investor are met while taking into consideration their concerns about social, environmental, ethical and corporate governance issues.

The SRI market is still evolving. This is why the terminology used varies widely, as well as what criteria are used for these investments. In some instances SRI investment can refer only to social, environmental and ethical issues whilst at other times it will also focus on corporate governance.

SRI investments are managed in accordance with a range of ethical criteria which can vary between different organisations; broadly what they provide is reassurance that your investments are not being used in sectors which you may morally disagree with (such as arms or pornography.)

Green investment strategies

There are a number of different ways that an ethical or green investment strategy can be developed and the levels of stringency with which each is adopted can also vary significantly between organisations.

Screening is a common tool used across the market and can be approached from either a positive or negative stance. A negative screening approach is where specific companies are excluded from the investment strategy because of their involvement in particular areas. Positive screening involves an opposite approach in that companies are specifically included because of their social responsibility record and making positive contributions to society and the environment.

Examples of positive and negative screening criteria are shown below:

 Positive  Negative
 Environmental protection  Armaments and nuclear weapons
 Conservation and recycling  Animal exploitation
 Ethical employment practices  Environmentally damaging practices
   Gambling

A preference or best-of-sector approach to the development of a green investment strategy can also be adopted.  This permits the investment in companies operating in a particular sector (ie oil and gas) but restricts it only to those that are considered best in sector in that they have a better environmental record for example than the others. 

Another approach is activism. This is where investors in companies use their influence to make a positive change to the behaviour of the company.  This approach does not necessarily exclude companies from the investment strategy but instead the organisation encourages the company to adopt social and environmental best practices through engagement with senior management or voting at annual general meetings.

The range of different investment strategies in use across the market means that an investor looking for an ethical or green investment needs to do their research and find out the specific approach being adopted so that they can be sure it addresses their own specific requirements.  

Invest in a sustainable future with the Triodos Socially Responsible Investment Funds.

Triodos Bank aims to enhance people’s quality of life. It has more than 25 years of experience in investments that deliver positive change. As a result of this work it has become globally recognised as a front-runner in impact investing, and producing social and environmental as well as financial returns.

We believe that in the long term, the most successful businesses will be those that achieve the best balance between their social, environmental and economic performance.

The Triodos Socially Responsible Investment Funds invest in equities issued by listed companies delivering a social, environmental and financial performance. We consider only companies that clearly outperform others with regards to sustainability, in their respective sectors. In addition, they must comply with our strict minimum standards . Investing in our SRI funds is not the same as investing money in a bank account as your capital is at risk and you may not get back the full amount that you invested.

As part of our commitment to full transparency we also publish the list of companies into which our customers’ money is invested .

Ensuring your money is invested well, now and in the future.

To ensure all our requirements are met, we have our own sustainability research team, responsible for selecting companies for inclusion in the Triodos Sustainable Investment Universe. Our research team sets our strict minimum standards, screens companies on a number of sustainability criteria and enters into a dialogue with these companies.

Companies are screened against a wide range of criteria. Our research team engages with them both during and after the selection process, encouraging them to improve their business practices. When such large companies start to move, even if it’s only a little bit at a time, the wider impact can be very significant.

What your money will not do.

Our minimum standards are Triodos Bank’s bottom line: The standards we apply to ensure that your money will not fund any business or countries engaged in activities we consider unacceptable for individuals, society or the environment.

Our minimum standards set out where we have either a zero tolerance or strict minimum thresholds for a company’s activities such as for example the production of coal or nuclear power or involvement in gambling or the fur industry, tobacco, pornography and also weapons be them nuclear, chemical or biological weapons .

Specifically we exclude;

  • Companies that are involved in unsustainable products and services such as the world’s most hazardous substances, nuclear energy, unconventional oil and gas and weapons.
  • Companies that are frequently and significantly involved in controversial activities and do not take steps to change such behaviour, such as violation of human rights, environmental damage and corruption.
  • Companies that operate in sectors with an increased sustainability risk, that do not have adequate policies in place to mitigate these. Examples can be businesses involved in mining or oil and gas extraction, but also the manufacture of food or household products.

These standards are dynamic, evolving over time with our deepening understanding of sustainability, and, in line with the Triodos values, to reflect the latest developments in our society.

See the latest version of our minimum standards here .

What we offer

Triodos Bank offers a range of different ethical investments and ethical savings products:

Sustainable investment funds

We offer a range of ethical and sustainable investment funds available for inclusion within our Stocks and Shares ISA or not.  Find out more about our range of Socially Responsible Investment funds here . Please note, investing in our SRI funds is not the same as investing money in a bank account as your capital is at risk and you may not get back the full amount that you invested.

Direct Investment

Investing directly in Triodos Bank through our Depository Receipts  not only offers the possibility of a financial return but the opportunity to play a part in shaping a better future. Investing in Depository Receipts is not the same as investing money in a bank account as your capital is at risk and you may not get back the full amount that you invested. Find out more about investing in a sustainable bank here .

Cash savings

Whatever you're saving for, we've got a ethical savings account to suit your needs - from tax-free ISAs to easy access online savings , fixed term Bonds and savings accounts for children .

Additional resources and reading on green investments

This guide is only intended to be an introduction to the area of green and ethical investment covering, at a high level, the general terminology used and some of the main differences between each. You should not interpret anything in this guide as financial advice.

Investment decisions must only be made on the basis of the Prospectus or Key Investor Information Document(s), and not on any information provided in this guide.

The following additional information may be useful for anyone wishing to complete additional research on the subject.

National Ethical Investment Week  

Blue & Green Tomorrow's Guide to Sustainable Investment 2013

 

 

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Active engagement

We pursue active engagement and dialogue with the companies we invest in.

Investment approach - How we invest

How we ensure your money is invested only in companies with the best sustainability performance.

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