Sustainable investing has grown significantly in the past few years. A recent report from S&P Dow Jones Indices indicates that sustainable investing strategies have grown to more than $20 billion in assets, and more investors are showing interest in this type of investment than ever before.
This has prompted many financial advisors to ask: Is sustainable investing worth it? Are there any drawbacks? What is the morality of investing, if there is any at all?
In fact, according to The New York Times, there are now more than 1,300 mutual funds and exchange-traded funds (ETFs) that screen companies based on their environmental, social, or governance standards. These are known collectively as “sustainable” or “responsible” investments.
Here is everything you need to know about sustainable investing and how it can help your portfolio grow responsibly.
What Is Sustainable Investing?
To understand the morality of investing, it’s essential first to understand what it is. In general, sustainable investing refers to any strategy that incorporates environmental, social, and governance factors into the investment process to maximize positive performance and minimize negative performance over time.
Sustainable investors tend to favor investments screened for their positive impact on society and the environment. Sustainable investors want their portfolios to be consistent with their long-term goals and be responsible for their effects on society and the environment.
Investors interested in sustainable investing are most concerned with environmental, social, and governance (ESG) issues. For example, investors interested in sustainable investing may screen companies based on their carbon footprint, management team’s track record, or employment policies.
Why Should You Care About Sustainable Investing?
Given the current state of the world, it’s more important than ever that investors use their purchasing power to effect positive change. There are many reasons to be a responsible investor, including:
Protecting the Planet for Future Generations
As the saying goes, “you can’t unspell oil,” so if humans continue to emit carbon at today’s rate, there will be severe consequences for the planet. Investing in a way that protects the environment will help to ensure that our planet is a sustainable habitat for many generations to come.
Growing Your Portfolio
Sustainable investing is a way to align your investment portfolio with your values. This means your money will be less likely to contribute to activities you don’t support or are not consistent with your long-term goals.
When you care about how your money is invested, it’s more likely to grow over the long term because you’ll have less money tied up in the fossil fuel industry and more engaged in the renewable energy sector.
Impact on The Industry You Invest In
Companies respond to investor pressure differently, but one thing is sure: if they’re making less money, they have less to invest in growing their business. This means that by taking your money out of a company, or by not investing in it in the first place, you can have a real and lasting impact on that company’s practices.
Use Your Money To Make a Positive Change
Financial markets are incredibly powerful. The money flowing in and out of companies has a significant effect on their share price and, therefore, the value of your investment. This means that as an investor, you have the power to influence how companies operate by taking your money elsewhere.
The Bottom Line: How Can You Put This Into Practice?
Sustainable investing is a long-term strategy that requires patience and a willingness to take a slight dip in performance for a more positive impact on the world. The most sustainable investments will be those that provide a positive return while contributing to a more sustainable future.
If you’re interested in sustainable investing, you can begin by looking at the holdings in your current portfolio. If you notice that some of these companies are not aligned with your values, you have the power to change your investment strategy to put your money to work in a way that is more consistent with your beliefs.