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What You Need to Know About Sustainable Investing

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We hear the word “sustainability” and talk about going green or reducing our carbon footprint to help protect the planet we call home.

We choose solar power and make our offices paperless, and walk or bike to work instead of driving, but what about our investments? What do you need to know about sustainable investment? Is it different from traditional investments, and how can you get in on this new sustainable trend?

What Is Sustainable Investing?

If you’re not familiar with the term, what is sustainable investing? The phrase is one name for investing in companies or stocks based on the company’s environmental, social and corporate governance practices, or ESG. You might also hear people call it socially responsible, principles-based, impact or ethical investing. The concept of sustainable investments isn’t new, but due to an increased global focus on climate change, some of the priorities of this type of investment have shifted.

What makes sustainable investing different from other ways you could invest your money is that you’re not only looking at the stock price when you’re making your decisions. While it might play a role in your final decision, this isn’t the sole driving force behind this type of investing. You don’t want to lose money, but at the same time, you don’t want to invest your hard-earned funds into a company that is harming the environment instead of helping it.

One study has found that while 71% of investors are interested in making their investments more sustainable, more than half believe sustainability and profit are mutually exclusive concepts. One group that is more engaged in this form of investment is those belonging to the millennial generation, with more than 84% interested in sustainable investing. Millennials’ interest in sustainability goes beyond their investment choices. In one recent survey, three-quarters of millennials said they would be willing to accept a lower salary if it meant they could work at an environmentally responsible company.

Investors may have considered sustainable investments to be risky in the past, but a 2018 survey found investment portfolios built around sustainability nearly always meet or exceed investor expectations, both when it comes to the sustainability impact and when they consider their financial return. Often, this is because companies with high ESG ratings are more competitive and less volatile than their mainstream competition.

Sustainable investing has grown by more than 100% annually since 2012. The shift in demographics, specifically targeting millennials, will continue to support this growth. This generation is currently poised to inherit more than $30 trillion as parents and grandparents pass away, and they are now the generation most focused on sustainability.

If you’re interested in sustainable investments, it’s time to start putting your money where your mouth is and investing in companies that are good for the planet. How can you get started with sustainable investments?

Getting Started With Sustainable Investing

Getting started on your sustainable investment journey is easier than you might think. It just takes a little extra thought before you sign on the dotted line or click the “submit” button.

The best place to start for anyone without sustainable investment experience is in sustainable funds. They’re similar to other investment funds, so you’ll get built-in diversification without having to investigate the company’s environmental or social impact yourself. The United States Sustainable Investment Fund website is a great place to start, especially since it lets you sort through the available funds based on minimum investment. You can get started for as little as $1,000, though there are some funds with a substantially higher buy-in.

These sustainable investment funds end up offering better stability without the work. You can enjoy strong returns while knowing your investment is helping better the planet.

As you gain more experience with sustainable investments, you may wish to start creating your portfolio based on the individual needs or desires of your company. Doing so will require additional investigation into the ESG rating of each company you’re interested in investing in. While transparency has become more common in today’s business world, there is still no standard for ESG disclosure. Some companies might be happy to tell you all the good they’ve been doing, while others may sugarcoat it to hide less-than-sustainable practices.

That is why sustainable investment funds are so useful for first-time sustainable investors. You don’t have to do all the work or all the research. The team that manages the fund does it all for you, making it easier to make the best decision for yourself or your company.

Finally, regardless of how you choose to manage your sustainable investments, ensure you’re checking your portfolio regularly. If you’re investing through a fund, your management team will alert you if there are any major changes, but it’s always a good idea to see things for yourself, to ensure the investments are still the best choice for you or your company.

Looking Toward the Future

Sustainable investing might not be a new concept, but it will pick up both speed and momentum in the coming years, as companies and individual investors start to think about the impact their investments have — and not just the effect on their bottom line.

Hopefully, in the coming years, as this style of investment becomes more popular, the industry as a whole will standardize their ESG disclosure tactics. That way, anyone can invest sustainably without worrying about the sometimes-considerable buy-in for sustainable investment funds.

If you’re interested in making your money a little more sustainable, consider shifting your investment style to include more sustainable companies.

Ideally, you’ll also want to take steps to make your company greener in the long run, but this is one step you can take without making too many changes to your existing practices.

If investing is part of your overall business plan, why not make your money work for you and improve the planet at the same time? Sustainable investments will continue to grow and thrive for years to come.  

Licensed Image from Shutterstock – By Vintage Tone

About author

Kayla Matthews is a technology and energy IT writer whose work has appeared on Motherboard, MakeUseOf and Triple Pundit. To read more posts by Kayla, follow her on Twitter @KaylaEMatthews.