This month we celebrate Earth Day, a day dedicated to shining a light on ways to make the world a better place to live. Sustainable investing, also known as socially responsible investing, is one such strategy that has been gaining momentum. Sustainable investing seeks to gain long-term benefits for both financial return and the environment and society. Oftentimes, those who engage in sustainable investing do so through companies that are ethically and socially conscious.
According to BlackRock, “assets in dedicated sustainable investing strategies have grown at a rapid pace in recent years, and this trend is showing no signs of slowing.”
At its core sustainable investing is the desire to use your money to bring about social and environmental change. According to the Corporate Finance Institute, “The three main subheadings under sustainable investing are environmental, social, and governance (ESG). Environmental investments closely examine the way a company considers non-renewable resources, climate, and the move toward clean energy. The social aspect of sustainable investing looks at causes that consider human rights and diversity. They include topics, like gender equality and support for underprivileged people. The governance aspect of sustainable investing looks to companies that promote business ethics, as well as trust, transparency, and compliance in the marketplace.”
The following are some examples of the many considerations of sustainable investing according to Morningstar, which breaks down the various components according to the three main subheads:
There are many feasible ways to add sustainable investing to your portfolio. You can look at the prospectuses of individual stocks which will detail a company’s sustainability initiatives. There are also many ESG open-end and exchange-traded funds to select from. As with any investment, you want to do your research and make sure that the stocks or funds you choose are consistent with your tolerance for risk, return objectives, investment time frame, and overall asset allocation strategy. A financial services representative can help you develop a strategy for adding sustainable investing into your wealth management plan, a great way to give back this Earth Day.