Sustainable investments have grown in popularity among consumers and shareholders. Brokerages and financial websites now provide research on mutual funds and ETFs that meet sustainability criteria.
Negative screening allows you to eliminate companies that don’t match your values, such as stocks related to tobacco, alcohol, firearms and gambling.
Purpose
Sustainable investing refers to investment strategies that consider environmental, social and governance (ESG) principles. This can include negative/exclusionary screening, positive/best-in-class screening norms-based screening ESG integration or thematic investments.
Many investors want their investments to reflect their values, especially younger people who are focused on climate change and social justice issues. That has created demand for advisors and platforms offering sustainability-themed portfolios. It also has pushed companies to consider ESG factors in their business operations.
Investors can push for sustainable practices through shareholder action and engagement, such as proxy votes, tracking shareholder proposals and engaging with invested companies about ESG issues. ESG factors can be used to find risk in an investment and may lead to better performance over time; but beyond returns alone, sustainability investing strives to make a difference in society.
Profit
Sustainable investors are motivated by more than money. Their desire is to support companies whose values align with theirs. If one company’s mission is high-quality education, for instance, an investor might buy its stock.
Negative screening selects investments based on what you don’t want; positive screening chooses them based on desired factors or outcomes outlined by PRI’s mission known as impact investing — which forms a key part of our ideology.
To maximize the impact of your sustainable investments, work with an advisor who understands your values so they can help you select appropriate companies. Your advisor should also assess your risk tolerance — whether you prefer conservative or aggressive investments — which could affect how well sustainable investing performs for you.
Impact
Many investors like the idea of using their dollars for good with socially responsible investing; the sustainable investing movement gives them a way to do that. But incorporating sustainable investments into a portfolio requires expertise in ESG issues and solutions that meet both investment goals and values.
One challenge in ESG reporting standards is that they aren’t uniform, so investors have difficulty distinguishing between companies that report ESG metrics and those engaging in “greenwashing.”
Individuals can take part in sustainable investing by choosing funds or companies based on their own values. Investors can vote with their wallet by buying goods and services from companies prioritizing sustainability. Sustainable investing has become a popular way to create change, but it’s one of many ways to reconcile profit with purpose as businesses develop diverse customer bases and resilient models.
Risk
Desiring market-rate financial returns, sustainable investing seeks to include ESG factors in its approach. It has plenty of strategies for implementation. You can screen investments by company name or sector, or use ESG ratings as the basis of direct investments. There are numerous ways to invest sustainably.
The first step in creating a sustainable investment strategy is setting objectives that are clear and concise. Think about what you want out of your interests: Is it risk mitigation? Support for companies that practice ESG-positivity? Once those objectives are set, start researching mutual funds or green robo-advisors such as Wealthsimple; they use ESG ratings to automatically build portfolios you could potentially invest in via your brokerage account or financial advisor. You can also purchase green bonds that fund environmentally beneficial projects like renewable energy generation or pollution reduction.
If you don’t have expertise in this area, make sure you have someone on your team who does before embarking on this journey. That could mean hiring specialists in ESG research and engagement or a wealth manager who conducts due diligence on companies to verify their claims of sustainability align with their actions and performance record.