This article contains links that we can receive compensation for if you click on them, at no cost to you.
There is an unfair assumption that all businesses put profit first and don’t care about our fragile environment. But like many assumptions, that’s not true.
In fact, there are many companies that focus on sustainable practices to protect the earth. And you can invest in it to both lend your support and make some potential profit along the way.
In this sustainable investing guide, we explore how to make money doing good for the planet.
What is investing in sustainability?
Dictionary.com defines sustainability as “the quality of not harming the environment or depleting natural resources, thereby supporting the long-term ecological balance.” You often see companies in the agricultural and retail sector talking about sustainability.
Investing in sustainability means investing in companies that take sustainability seriously.
Sustainability is not a new concept
The EPA’s discussion of the importance of sustainability began with the National Environmental Policy Act of 1969. It was one of the first laws to focus on protecting future resources and taking into account the social, economic, and environmental impacts of business practices. Decades later, concerns about climate change and environmental damage are still discussed and explored for future generations.
Reduce, reuse, recycle
We older millennials and earlier generations may remember the EPA Reduce, Reuse, Recycle campaign. This simple alliteration got us thinking about sustainability and how small, simple actions can have a big impact.
In addition to Reduce, Reuse, Recycle, the EPA site has several other resources for greener living. Topics include sustainable living, being green on the road, throwing away less, choosing greener products and more.
Learn more:
Sustainable investing versus socially responsible investing (SRI
When examining sustainability and social responsibility in investing, many common terms will seem interchangeable. One term I see often is ESG, which stands for ‘Environmental, Societal and Governance’ factors. ESG, socially responsible investing and sustainability all seem to be intertwined.
Sustainability and socially responsible investing are not exactly interchangeable
While these types of investment terms seem interchangeable, there are some subtle differences. Sustainability is a subset or part of socially responsible investing corporate social responsibility. By definition, sustainability focuses primarily on the environmental factor. Socially responsible investing as a whole is the ‘big picture’. Sustainability is in the details.
However, when sustainability was one of the key buzzwords in my MBA program, it referred to the likelihood that a company would be able to take action for the long haul. Is this variable sustainable over time? Sustainability is often synonymous with long-term impact.
Other terms for sustainability
The Forum for Sustainable and Responsible Investing is a great resource to learn more about investing in sustainability. Other terms that describe sustainability are ethical, community or impact investing. You may also see green, mission-related or socially responsible investing.
How to invest in sustainability
You can start with an SRI investment strategy. Betterment has created three portfolios of low-cost exchange-traded funds (ETFs) that focus on SRI practices. Along with its social impact and broad impact portfolios, Betterment offers a climate impact portfolio that supports companies working to mitigate climate change.
Morningstar has created its own sustainability rating. FinancialMechanic.com broke it down: Morningstar deducts points from a company’s sustainability rating if there are ESG issues, lawsuits, or other issues. This is an option to find sustainable funds.
Partnersinfire.com lists two other sources for sustainability reporting: MSCI ESG Ratings and Sustainalytics ESG Ratings. While different agencies have different standards, you can research them and see which one best aligns with your values.
If you want to make an even more positive impact with your investments, partnersinfire.com also lists an impact investment reporting process that is even more thorough than sustainability reporting.
Disadvantages of sustainable investing
There are drawbacks to a responsible investment strategy that makes use of ESG issues, sustainability or social responsibility.
Standardization and lack of information
One problem with sustainable investing is financial returns. Data shows that there is no strong argument that sustainable investing, or socially responsible investing at a higher level, outperforms other investments.
A major problem is a lack of information. ESG scorecards, sustainability reports and other SRI data have no standard governing body or data reporting tools. This also creates a lack of transparency in what companies could be in the different sustainable funds.
Research and due diligence
Another disadvantage of sustainable investing is research and due diligence. This can only be a disadvantage for passive investors. For those who want a “set it and forget it” investment strategy, sustainability may require further research. Due to the lack of standards and transparency, further research is needed to ensure that you are investing according to your values and the impact you want to make.
Alternative ways to invest in sustainability
You do not have to invest directly in sustainability through investment funds. There are other ways to invest directly. Invest in companies that you value by buying their goods and services or stocks.
Recommend your favorite companies to others and mention that you love their products and that the company also believes in corporate social responsibility. Show others how the company is impacting their communities.
Learn more:
Building a sustainable lifestyle
Many on the path to financial independence often review and cut costs. Often this means downsizing or practicing minimalism. An advantage of this is the impact on sustainability.
Instead of buying various low-quality disposable items, those on the path of financial independence practice value-based spending. Often this means buying higher quality products that last longer and are made to have a smaller impact on the environment.
Many in the financial independence community are investing in solar panels. Why? Solar panels can reduce dependence on electricity and lower costs. The savings from switching to solar panels and electric vehicles have monetary and environmental benefits for our climate.
Why does the financial independence community love electric vehicles? They don’t need gas. Aside from saving money, using an electric bicycle (as well as non-electric ones) is good practice. Health is wealth, right? As electric cars become more popular and more charging stations become available, we can travel farther without gasoline and the environmental impact it causes.
Share: Share this article on Facebook Facebook
Share this article on Twitter Twitter
Share this article on LinkedIn LinkedIn Share this article by email Email
This post Sustainable investing: profit while protecting the earth
was original published at “https://millennialmoney.com/sustainable-investing/”
