Sustainable investing aims to grow your wealth while supporting causes you care about. It focuses on companies and funds that meet environmental, social, and governance (ESG) standards or have a direct impact on social or environmental issues.
What is sustainable investing?
Sustainable investing balances financial returns with positive environmental and social outcomes. Strategies range from excluding certain industries like tobacco or firearms to investing in areas like renewable energy or affordable housing. This can also be called socially responsible or ethical investing.
Types of sustainable investing
- ESG investing considers environmental, social, and governance practices. Investors may avoid companies that score poorly on ESG factors or prioritize those ranked best in their sectors.
- Impact investing aims for measurable outcomes, like funding healthy food access in underserved areas.
- Thematic investing puts money into causes like clean energy, women’s leadership, or global healthcare via mutual funds, ETFs, or specific companies.
What makes an investment ‘sustainable’?
There’s no one rule, but sustainable investing generally supports long-term well-being across environmental, social, and economic lines. The UN defined sustainability as meeting present needs without harming future generations.
Do sustainable investments perform well?
Studies show mixed results. Some sustainable funds match or exceed the returns of conventional funds, and sustainable companies may be less exposed to risks like pollution fines or data breaches. Sustainability can also encourage innovation.
Why it matters
Sustainable investing lets you build wealth without compromising your values. It helps avoid supporting industries or practices you oppose and allows you to back companies making a positive impact.
How to find sustainable investments
- Robo-advisors often include ESG options in custom portfolios.
- Brokerages and finance sites let you filter for sustainable mutual funds or ETFs.
- Third-party ESG ratings help assess individual company practices.
- Financial advisors can help align your values with your investment goals.
Examples of sustainable funds
- iShares ESG Screened S&P 500 ETF (XVV): Excludes stocks tied to fossil fuels, tobacco, and weapons.
- Vanguard ESG U.S. Stock ETF (ESGV): Screens companies based on UN principles and social criteria.
- Gabelli Love Our People & Planet Fund (LOPP): Focuses on sustainability, health, and resource conservation.
- Fidelity Clean Energy ETF (FRNW): Invests in renewable energy producers.
Sustainable investing doesn’t mean lower returns. You can choose investments that align with your values, whether avoiding harm or promoting good and potentially see solid financial performance over time.
