Do good while also doing well.
By Jenny Hoff, Photo by Alan Rodriguez
It wasn’t too long ago that sustainable investing seemed like a niche interest, hardly poised to go mainstream in the hyper-competitive world of investing, which tends to solely focus on a maximum cash return on investments. But times have changed, and sustainable investing is no longer considered just a “feel-good” addition to a portfolio, but rather a necessary asset to get the returns most investors are seeking.
You may see the acronym ESG when looking at investment options. Major consulting groups like McKinsey say businesses that get their ESG proposition right also end up creating more value, which means better returns for investors.
E is for environmental criteria.
This includes the energy a company takes in and the waste that is discharged. It also includes carbon emissions and consequences for the planet and living beings.
S is for social criteria.
Social criteria addresses the relationships a business has and fosters with people in the communities where they do business. This could include labor relations as well as diversity and inclusion.
G is for governance.
Every company requires governance, which is an internal system of practices, controls and procedures it adopts in order to make effective decisions, comply with the law and meet the needs of external stakeholders.
According to Nerdwallet, “socially responsible investments” are often judged using an ESG-based grading system. The higher the score, the more sustainable the companies. The easiest way to sustainably invest is to put your money into funds marked ESG, which you can find by going to any investment firm and searching for ESG exchange-traded funds (ETFs) or mutual funds. This means that the companies you’ll be investing in meet certain sustainable standards. Instead of handpicking individual companies to invest in, funds will include a variety of companies, so you are taking on less risk. (If one company fails, there are many others in the fund that might be performing very well, helping mitigate the chance of a loss.)
If you want an even easier approach to sustainable investing, there are a number of robo-advisors that will offer a variety of funds, depending on the causes you care most about. Companies like Betterment, Wealthfront and Merrill Edge Guided Investing all provide either impact portfolios you can choose from or customized portfolios with ESG restrictions.
If this all sounds too confusing, think of it like this: If you’re searching for houses on Redfin or flights on Kayak, you can use filters to ensure the products you’re seeing are the ones that fit your needs. Many investment platforms have created a user-friendly experience so that all you need to do is use the search function to include sustainability measures and then choose a portfolio recommended based on your filters. Connect your bank account with the money you want to invest and you’ll be on your way to (hopefully) making your money grow and supporting companies that share your values.
The great news is you don’t need to sacrifice a profitable return on investment to do the right thing. With sustainable investing, you can do good while also doing well.