How to buy stocks without wrecking the planet

So you figured “Now’s the time!” and decided to invest in shares – great! But how do you buy sustainable shares that align with your values? In this post you will find a number of ways how to approach this decision.

Before you make any decision, remember: invest only what you can afford to lose or start by directly investing in a well diversified fund (i.e. a basket including a large number of different shares). This post focuses on how to buy sustainable shares, because funds are by definition more complicated, also when it comes to their sustainability performance.

It seems like a lot of work, but don’t worry too much: if you buy shares in a company that you later find out engages in nasty stuff, you can (and should) still sell them. Its better to get started with an imperfect choice than to not get started at all!

Start with something simple – and with common sense

First of all, sign up for your bank’s e-trading and check what they have on offer. You will probably not be able to buy shares in that fancy Chinese tech company you read about, because the Chinese market is not very accessible. If you stick to a firm from your own country, not only will you probably know it better, you will also avoid higher transaction fees and currency risk.

And obviously you’re not going to finance a company that produces weaponry, extracts fossil fuels or anything else that you disapprove of. Companies with constantly bad press are also to be avoided. But how about a manufacturer of wind turbines, electric cars or meat substitutes?

This already narrows down the choice quite a bit – maybe enough to just have a look at the publicly traded firms in your country (most newspapers have page for that) and pick from there. But usually it’s not that simple.

Beware of large conglomerates

Large, multinational companies (often referred to as Blue Chips) are typically safer investments from a financial point of view. But they also present a typical dilemma. Take BMW: its i3 electric cars are sustainably produced, very efficient and might hold a lot of potential. But if you truly care about sustainability, you will not buy BMW shares, because most BMWs are still big, fuel guzzling wannabe-tanks.

Many large companies are engaged in a wide variety of businesses, some more, some less sustainable. So if you can’t find any better investment alternatives, you might have to balance the good vs the bad parts – not an easy task.

Consider sustainability rankings

Much like labels in the super market, sustainability ratings and rankings reduce complexity by making simple statements: Company A is better than company B and company C is the worst of all. Here’s two rankings you can check out to get started:

• The Corporate Knights Global 100 is a Canadian ranking with global reach. It ranks companies according to their carbon efficiency, taxes paid, CEO-to-worker pay ratio, % of women on the board and the % of “clean” revenues. They combine the Best-in-Class approach (a company’s performance relative to its industry, see below) with the industry’s impact in relation to the overall economy.
  The list is part of their Winter 2019 issue and thus not free, but you can invest $0.99 in worse things than a good read.
• The RobecoSAM Sustainability Yearbook 2020 is free to download after you complete a short registration form. This yearly publication has been around for a while and analyses companies’ sustainability performance for over 60 market sectors. It also follows the Best-in-Class approach, awarding gold, silver and bronze labels.
  Watch out though: This does not mean that Air France-KLM, which is the only gold-rated airline, is sustainable. Their planes still run on kerosene and emit a lot of CO2, they’re just better than other airlines. Nevertheless, the rating is based on solid data and gives you a very good idea of which companies could win your favour.

It’s probably a good approach to not rely on a single ranking alone. Instead, browse through one and write down the names that catch your eye. Then check out a second rating and verify which of your names are also rated well there.

Beware of “the best”

The Best-in-Class approach mentioned above requires a few words of explanation. It describes a ranking methodology which follows the principle of not comparing apples with pears. It would be unfair to compare Air France-KLM with a provider of renewable energy, because both businesses are fundamentally different. Instead, Best-in-Class only compares companies within a specific industry. This allows to identify companies in unsustainable sectors trying to clean up their act or vice-versa. Many sustainable investment funds follow this method in order to diversify across as many sectors as possible.
If you as a sustainability-minded investor don’t like investing in the “best of the worst”, make sure you take these ratings with a grain of salt by not considering certain sectors at all (airlines, oil etc.).

Read the news!

It might seem silly in the era of “fake news” to rely on press reports and news articles. And even the best company faces bad press once in a while. But if respectable news sources and NGOs continue to report misdeeds of a particular company, give that one a wide berth. Reports might include lobbying against climate policies or human rights issues in their supply chain.

Press coverage also has an impact on certain sustainability ratings.

Geek out on sustainability reports

If you know your sustainability stuff, check out the sustainability reports of the companies you are most interested in. Look for signs of holistic approaches:

• Does the company report data and issues across all of its business? Should be expected from large companies, but is not always the case for small and medium-sized ones.
• Does it also include its “upstream” supply chain and the “downstream” effects of the use of its products? That would be pretty good already.
• Can you make out the smell of some dirt in the business that was painted green (aka greenwashing)? That’s a warning sign – although it could also just be a bad communications department.

Buy now or later?

So what about the timing?

Forget about the timing. If anyone could tell for sure if shares go up or down, they would certainly not tell anyone else. Provided you are ready to keep the shares for at least a few years – and provided your investments are small or well diversified – you can buy at any time. That said, if you just feel like now is a particularly bad timing, don’t buy. Exception: you have a regular savings plan that invests in a fund, in this case just stick with the strategy.

But even if the time doesn’t feel right, use the time now to follow some of the advice in this post and write down a few shares that interest you. That way you are prepared for sudden price drops in the future – just don’t forget to act on them!

And remember:

Time in the market beats timing the market.