You Can Invest Sustainably and Still Make Money
Investing in creating a more sustainable planet is a good ideal, but capitalism and sustainability rarely go hand in hand. Is there really a way to invest that is good for the environment and good for your wallet? Sustainable investing, also known as socially responsible investing, has become increasingly accessible in recent years. This involves investing in companies and funds that have positive environmental, social and governance (ESG) practices, hence the other common term “ESG investing.” If you’re interested in putting your money to work for both financial gain and positive impact, here’s what you need to know about sustainable investing and how to get started.
What is sustainable investing?
Sustainable investing means investing in companies and funds that seek to create long-term value by incorporating ESG factors into their operations and business practices.
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Environment: How the company operates in terms of reducing carbon emissions, limiting pollution, using resources efficiently and protecting ecosystems.
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Social: How a company manages relationships with its employees, suppliers, customers and the communities in which it operates. This includes areas such as human rights, labor standards and diversity.
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Governance: Refers to the direction and accountability of a company, including executive compensation, corruption policies, board independence, and transparency.
With ESG issues in mind, sustainable investing aims to enhance corporate responsibility as well as reduce risks that could impact a company’s performance. Personally, Charles Schwab explains that choosing ESG funds “does not put investors at a disadvantage when it comes to risk or return.” This means that if your values lead you towards greener investing, your wallet won’t suffer.
Different approaches to sustainable investing
There are several approaches to investing in companies and funds that align with your values:
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ESG Integration: Adding analysis of ESG factors to investment analysis and decisions.
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Negative/exclusionary screening: excluding certain sectors, industries or companies from investments that do not meet ESG criteria, such as tobacco, weapons or fossil fuels.
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Positive/Best-in-Class Screening: Investing in sectors, industries or companies that outperform their peers on ESG practices.
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Impact investing: Targeted investments that address social or environmental issues, such as clean energy.
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Shareholder Advocacy: Using your influence as a shareholder to engage companies on ESG issues.
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Thematic investing : investing in a specific topic, such as clean water or gender equality.
Ways to invest sustainably
If you’re ready to start investing sustainably, here are a few steps you should take:
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Choose an investment account that offers options that align with your values, such as a robo-advisor that focuses on responsible investing.
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Choose sustainable mutual funds or ETFs that test ESG criteria or address specific issues. Leading fund families such as Parnassus Investments and Calvert Research and Management offer excellent options.
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Consider green bonds, which finance projects that have positive environmental or climate benefits.
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Use your investment funds to support companies with technologies, products and services that promote sustainable development.
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Invest in community development institutions such as credit unions and community banks that support economically distressed areas.
Bottom line
Through sustainable investing, you can use your money for both financial growth and social good. Focus on your priorities, thoroughly explore your options, and seek advice to create a values-based portfolio. The ESG investment landscape continues to expand rapidly, making this approach more accessible than ever.