When it comes to investing, sustainability is the new buzzword. Money managers and financial advisors urge clients to align their investment portfolios with personal values through sustainable investing practices.
This practice involves investing in companies that are good for society and the environment. In other words, investors avoid companies that pollute, mistreat animals, or destroy natural resources. These firms tend to be smaller startups and established businesses that take a triple-bottom-line approach to manage operations– focusing on people, profit, and the planet simultaneously.
However, as straightforward as it might appear, sustainable investing is much more than just checking a box on your brokerage account. It requires an upfront time commitment and ongoing monitoring of your portfolio—something most people aren’t prepared for when they start with sustainable investing practices.
Continue reading this article to learn more about why this strategy is a smart choice and how you can get started with sustainable investing today.
Table of Contents
What Is Sustainable Investing?
Sustainable investing is a strategy that integrates environmental, social, and governance issues into investment decisions to balance financial returns with positive impacts on society and the environment.
In other words, sustainable investing isn’t just focused on reducing risk and creating a financial portfolio but also on improving society and the environment over the long term.
How Does Sustainable Investing Work?
Sustainable investing works differently for each approach, and there are a few different ways to go about it.
You can invest in companies with sustainable business models, invest in socially responsible investment funds (or SRI funds), or use environmental, social, and governance (ESG) screening tools to find companies with good environmental and social track records.
Remember that when you choose to invest in companies with sustainable business models, you’re investing in firms that are good for the world. They may not be the best-performing companies, but these businesses have strong track records of minimising their environmental and social impact and maximising the positive impact they have on society.
Reasons To Add Sustainable Investing To Your Portfolio
Many reasons should motivate you to invest in your portfolio. For one, sustainable investments have outperformed the S&P 500 in the past. Sustainable investments have been shown to outperform the S&P 500 every 11-year period over the past few decades.
Beyond outperforming the general stock market, sustainable investments can help you hedge against environmental and social risks, like climate change and plummeting biodiversity.
Thirdly, sustainable investing can help reduce your overall portfolio risk because it factors environmental, social, and governance (ESG) issues into investment decisions. This way, your investments can help you make money while you help make the world a better place.
Final Words: Is Sustainable Investing Right For You?
With continuing concerns over climate change, deforestation, species extinction, and water scarcity, coupled with alarming statistics about income inequality and other social issues, there’s never been a more urgent time to invest responsibly.
As such, a growing number of investors have become aware of the potential impacts their investments can have on the world, and demand for sustainable and impact investing has skyrocketed.
That said, sustainable investing may be right for you if you’re ready to make a conscious decision to invest in a good way for the environment and society.