What is Sustainable Investing?
Sustainable investing means something different to everyone, but broadly, it’s about excluding the morally deplorable from your investment portfolio.
Given a choice, no investor would opt to live off the profits of ethically deaf management teams and wanton business models. However, few investors realize they do have that choice.
Studies by the International Monetary Fund (IMF) have eased concerns about ethical investing returns, proving that rejecting dirty stocks has a negligible impact on your returns.
A poll of the Invstr community revealed 70% of us fully committed to this, so let’s get ethical!
Public companies are graded on their green! One at-a-glance metric is called an ESG score, which is industry-relative and measures revenue exposure to environmental, social, and governance-based issues. It puts the money first, telling the investor what they stand to lose or gain based on the company’s sustainable (or not!) activities…
On the other hand, SRI (Sustainably Responsible Investing) scores put the investor’s values first. Using either a “negative-screen” or a “positive-screen,” portfolios can quickly end up heavy on biodegradable fork manufacturers, and void of the undiversified oil and gas giants!
For years, companies “greenwashed” the markets with their own ESG and SRI “scores”! Now, rankings from the MSCI (a global index provider) are universally accepted. Make sure you still understand what lies behind the numbers, however, asking moral questions of ESG-rated companies, and asking financial questions of SRI-rated companies.
Start looking at exchange-traded funds (ETFs). These are ready-made baskets of stocks managed for you, and thousands are tracking ethical themes.
Many investors choose to track the returns of an overall stock exchange like the S&P 500, being the market instead of beating the market. This is possible with the S&P 500 ESG Index, and you can even shop by cause!
SHE is for gender equality, CRBN rewards carbon targets, DSI focuses on social factors, and SPYX is all about going fossil fuel free. As ethical investing becomes more and more mainstream, these funds will get cheaper and cheaper. Yearly fees on your invested capital should never eclipse 1%. Currently, most sustainable funds won’t charge you more than a fraction of that!
Take a Stand
In sum, the skeleton is out of the closet, investors are discriminating against the ethically challenged, and there’s nothing the bad guys on Wall Street can do about it! This everyday investors’ movement toward what’s “right” mirrors a strong shift in consumer behavior as well, wherein, much like voting, we can make a real difference with us all playing our part.
The big market movers will be forced to follow demand and adapt their ways as well, and companies that fall out of favor with their ethical shareholders will see their share prices bite the dust. It’s an emerging stock market niche, and the Invstr community is right amongst it!