- Introduction
- What is sustainable investing?
- Why might I consider sustainable investing?
- How can I tell whether an investment is truly sustainable?
- How do I make sustainability part of my investment decision-making?
- How do I get started?
- How do I figure out which investments might be best for me?
- Anything I should look out for?
Is sustainable investing right for you?
Read, 4 minutes
You might have heard a fair bit lately about sustainable investing. It’s getting a lot of attention from investors. But what’s sustainable investing about, exactly? How does it work, and is it something you should consider? The answers to these commonly asked questions could help you determine whether it’s something you might want to pursue.
What is sustainable investing?
It’s a way of investing that looks to provide the potential for positive long-term returns as well as supporting companies that may benefit the environment and our society. For many people, sustainable investing is a tangible way to weigh risks and uncover opportunities in the market, to invest in a changing world or to play a part in helping solve some of the world’s big challenges, while for others it can be a way to choose investments that fit with their personal preferences.
Why might I consider sustainable investing?
A growing body of research indicates that companies prioritizing social and environmental practices have the potential to offer both enhanced returns and reduced risk and remain competitive over the long term. That’s because these companies tend to be forward-looking and innovative, they may realize they can lower costs by reducing demand for energy, water or other inputs; or have higher productivity through an engaged workforce; and also because the way they do business tends to make them less susceptible to regulatory fines and reputational damage.
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Did you know?
Sustainable investing may also be called socially responsible investing (SRI); environmental, social and governance (ESG) investing; and values-based investing (VBI).
How can I tell whether an investment is truly sustainable?
Consider investments that look for companies that demonstrate specific commitments, particularly in these areas:
Supporting communities where they do business, fostering a diverse workforce, providing good employee benefits.
Reducing emissions or waste, either through the way they do business or the products and services they offer. Such companies may also be seeking solutions to existing environmental issues.
Having strong anticorruption practices; being transparent in disclosing the company’s performance and potential risks; and ensuring that their boards make decisions independent of top executives.
How do I make sustainability part of my investment decision-making?
Here are three ways you might look at your investments. You can make choices based on more than one of them.
Avoid companies or funds that you see as having negative social or environmental effects, and manage risk by limiting your exposure | |
Invest in companies that make sustainability part of their day-to-day operations, such as being energy-efficient or having a healthy representation of women in leadership | |
Pick companies that are working toward specific outcomes – such as healthcare firms seeking to expand access to care, or companies developing new ways to recycle waste |
How do I get started?
As more and more people show interest in sustainable investing, a variety of different funds have become available across asset classes, in addition to individual stocks. By doing a bit of research, you’ll come across a number of choices, as well as resources that can help you evaluate companies and funds. You can also look at the ratings published in the financial press and by industry groups. But be aware that each rating system may be evaluating according to different criteria.
- Individual stocks
- Mutual funds
- ETFs (exchange-traded funds)
- Green, sustainability or social impact bonds
- Separately Managed Accounts
- Alternative Investments such as Hedge Funds or Private Equity
How do I figure out which investments might be best for me?
Look at each potential investment to be sure it meets your personal criteria for sustainability:
Fits your financial goals | |
Clearly states its sustainability strategy | |
Regularly reports its sustainability performance |
Most companies detail their sustainability practices in their prospectuses and annual reports, and on their websites. If you’re investing in a mutual fund or exchange-traded fund, the associated disclosure documents will give you information about their investment objectives and strategies, including how much weight they give to sustainability practices.
Quick tip
Make sure you know what you’re investing in. There are many different approaches to sustainable investing. For example, a fund manager could include a company with a large carbon footprint because it has shown a commitment to reducing it, even if they haven’t gotten there yet, or is investing heavily in renewable energy
Anything I should look out for?
Beware of greenwashing—when companies or funds try to make their activities and products seem more ecofriendly, or supportive of employees and communities, than is actually the case. A little research can confirm whether a company’s commitment is genuine.
