Sustainable investing can mean different things to different people. The most important thing to remember is that this is about you and your values. There are no right or wrong answers, it is a question of what you want to achieve and how you want to achieve it.
There are a few key concepts that you need to think about which will help to guide you to the best approach for you.
It is not unreasonable to decide that you simply want an investment approach to maximise your returns and then express your values by how you spend those returns. The obvious drawback to this approach is that it tends to maintain the status quo. It takes time and effort to actively channel returns into good causes. Human nature being what it is, inertia tends to kick in pretty quickly and so there is a tendency for this approach to end up having no real impact on making things better and requires a lot of extra effort to make any sort of positive impact on the world.
The simplest and historically the most popular way of investing with some ethical dimension has been to exclude investments in companies or sectors that you believe are harmful. Exactly which companies are excluded depends on the beliefs reflected in the fund mandate and so funds of this type can vary widely in their composition. If this style appeals to you then you need to make sure that your views of what is harmful tallies with that of the manager. Issues with this approach broadly split into two categories. Firstly, most investment theory would suggest that the best tradeoff of risk and return over the long run comes from holding a widely diversified portfolio of investments. This means that excluding large parts of the "potential index" may not be optimal for risk adjusted returns. It is quite possible to argue against most of these points, including what is the correct definition of risk, or the likely negative long term outlook for some of these sectors etc but what is certainly the case is that a fund which excludes significant numbers of companies will perform differently to the index which includes them. There will be times when this will be positive and times when it will be negative but it is something to be aware of.
The other issue with this approach is that it could be seen as not promoting any positive change, just avoiding obvious harm. There are arguments that by not holding shares in harmful companies you are raising their cost of capital and hence discouraging their behaviour, but unless this is done wholesale by the investment industry, the actual impact is likely to be vanishingly small. Still, not doing harm could still be said to be better than nothing.
An approach that is very popular, particularly with the large fund management houses can be seen as a hybrid of the first two approaches. This is often described as a best of breed approach. The idea is that you still invest across all sectors, but within each sector you rank all of the companies based on a range of sustainability criteria and then only invest in the higher scoring ones. The advantages of this approach are that risk and return are much more similar to that of "normal " funds, and that by holding companies from all sectors, even companies within harmful sectors are incentivised to improve their behaviour so that their shares can be held by these funds. As this approach tends to be followed by many of the huge asset managers, this can be a significant incentive. The main drawback to this approach is that despite the theoretical benefits, in reality this tends to mostly maintain the status quo. The fact that the return profile is more similar to "normal" funds is because the portfolios are more similar. The specific criteria used to rank the companies varies by provider but as a general rule, there tends to be more than a slight correlation between company size and company rating , particularly for the biggest companies, although there are clearly some exceptions. A very large company has the capacity to have a department dedicated to producing reports tailored to ticking the boxes for ratings companies. You could argue that at least that means that they are aware of the issues, but it does mean that it is not always clear as to what is really being rated. This is an approach that works really well for large companies, of all types: large investment managers, large ratings companies and large listed companies. It is still a positive approach, given that it makes all companies aware of sustainability issues but it is very much incremental.
The last category is quite different from the others. This consists of investing solely in companies which are having a positive impact on the world around them. This might be that they are actively doing something positive, for instance generating clean energy, or that they provide technology or products to enable other companies to use fewer resources or to reduce their pollution. You still need to make sure that your view as to what counts as a positive impact tallies with the fund mandate, but generally there should be fewer surprises than with the previous category. The drawback is that these funds are, by their nature very different from the range of "more traditional" funds and tend to be exposed to a much narrower range of sectors. This means that the returns are likely to be much more volatile relative to broader indices. No matter how positive you believe the long term prospects are for any one sector, there will be times when business is very difficult and if all of your investments are exposed to the same issues then investment performance can be very poor. You only need to look back at the history of companies involved in making solar panels, or wind turbines to see that it is still quite possible to lose a tremendous amount of money in industries with very strong long term growth prospects.
This category consists of a whole range of very different funds, each with their own exposure profiles and so the key thing is understanding the guiding principles behind each specific fund. They can vary from a very narrow focus eg clean energy (so called thematic funds), or can cover a much broader range of sectors but with each company being selected for its particular, positive characteristics. Even these broader funds are still significantly less widely diversified than more mainstream products and so should be seen as part of a diversified portfolio, depending on your specific risk tolerances.
The other major factor to consider, which applies to all of the different approaches is that of shareholder engagement and stewardship. This is how the investment manager interacts with the companies that it owns and exercises the rights and responsibilities of share ownership. Owning shares in a company mean that you own a certain percentage of that company. That not only entitles you to that percentage of the economic value of the company but normally also gives you some votes at the company's general meetings to approve the accounts, appoint directors and approve other policies as necessary. This also means that you have some responsibility to assess the governance and policies of the company and encourage them to make changes where you believe it is necessary. This is an area where both regulation and industry best practice are pushing investment managers to be more active and open about their activities in this area. The idea is that if shareholders actively engage with companies then they can exert significant pressure on them to improve their behaviour. This is clearly a positive trend but as with most things in life, there are a few caveats. The first issue is that different investors have very different views as to what active engagement means. As with any industry wide regulation or initiative, there will be no shortage of policies to be seen, but the reality of implementation will vary widely between companies. This is probably the hardest thing to be able to judge from the outside as the high level policies will probably look very similar from all players. Clues as to the reality of the approach can be gleaned from reports of the outcomes of specific engagement processes, the more specific the better. Also important are reports of engagement attempts that have not worked. As in all other aspects of communication, reports that are only positive reflect either a lack of perspective or a lack of honesty. After comparing information from different companies, you start to be able to distinguish generic marketing from genuine beliefs.
I hope that this has helped to explain some of the different approaches available and broadly how they work. All of the categories have their own merits and drawbacks, the important thing is that you choose an approach, or range of approaches that are consistent with your values and your investment needs. At the least, I hope that I have given you some ideas for questions to ask your financial advisor.