Sustainable Investing: What the Buzz is About

What it is, why it’s growing and three ways you can align your investments with your values

Stroll any grocery store and you’ll find goods that signal their sustainability, from fair-trade chocolate to organic coffee. That same wave of sustainability is becoming commonplace in investing, too, with a variety of portfolios to choose from under many different names.

Let’s sort through some of the motivations for this method of investing, and how each one stacks neatly into one of three main sustainable investing strategies.

Balancing Growth and Values

If you want to invest in companies that are trying to make the world a better place, and want competitive returns, look into ESG. Investments with an ESG integration approach consider environmental, social and governance data alongside traditional risk and return metrics. The ESG data may include how well a company is managing environmental factors like pollution and energy efficiency, social factors like data security and labor standards, and governance factors like board diversity and business ethics.

The idea is to create a portfolio weighted toward companies with leaders who are skilled at managing these issues, which in turn may lessen financial risks such as fines and reputational damage. The ESG data is integrated into the investment process.

Do well-governed companies with high ESG ratings actually give investors an advantage? An analysis by Morningstar showed sustainable funds in the U.S. outperformed the broader market during a market correction in February 2018, and an analysis of 2,200 studies published in the Journal of Sustainable Finance & Investment showed material ESG factors had a positive or neutral impact on stock performance. It’s little wonder that this approach is gaining popularity as the data gets more sophisticated – and more compelling.

Prioritizing Principles

If you want to avoid investments that don’t align with your values or standards, you’re likely a fit for an exclusionary or “negative” screening approach to sustainable investing. This “do no harm” strategy traces back to Quakers in the 18th century who refused to invest in the slave trade, and was later seen when U.S. investors moved money out of South African apartheid-supporting businesses. Today, investors may choose to avoid tobacco producers, natural resource extractors, or major companies that lack diverse leadership.

Exclusionary screening is the most popular sustainable investing approach globally, according to the 2018 Global Sustainable Investment Review, though ESG integration follows closely behind.

Emphasizing Impact

If you want to use your money to create a measurable positive difference in the world alongside a financial return, impact investing might be for you. Of all the available strategies, this one most often consists of direct investment in private companies targeting big world problems. To achieve change, many foundations and family offices are establishing funds supporting local economic development and social impact missions across the globe.

Impact investing ranges from grant support to private equity, with liquidity risk and return potential varying dramatically. Though the space is newly evolving, impact assets are estimated at $228 billion, according to Global Impact Investors Network estimates, almost double that of 2017. This method of investing is especially appealing to younger generations, and shifts in wealth will likely lead to further growth.

Helping you invest in the future you want to see

If you are seeking new ways to live your values, we can help you sort through the options to find the sustainable investments that fit your life and the unique impact you want to make.