Sustainable Investing and How to Make it Work

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For the past decade, more and more people have started to care about sustainability. And, with the growingly evident consequences of pollution, climate change, deforestation, and uncontrolled use of natural resources, this isn’t much of a surprise.

But while, as a society, we still have a long way to go, things are (at least partially) starting to look up. Consumers, businesses, and some governments are starting to prioritize green practices, which is a step in the right direction.

And here’s the thing: you, too, can become directly involved in creating a better world. Plus, you can make money while doing it. The secret? Sustainable investing.

What Is Sustainable Investing?

The term sustainable investing refers to a range of practices where investors make decisions that align with environmental, social, and governance values.

These ESG values guarantee that the ultimate purpose of making any investment isn’t simply to generate wealth (although that’s also important). But, more than that, the goal of making decisions based on ESG values is to choose funds and stocks that will positively impact society and bring forth a better future.

How Are ESG Factors Determined?

To determine how a stock or fund scores in terms of ESG factors, investors will look at the following criteria:

1. Environmental: How a company impacts the environment (its carbon footprint, resource management, waste output, water conservation efforts, whether it uses clean energy, etc.) determines whether it’s a green brand.

2. Social: All businesses have an impact on society. Starting with the supply chain and how they treat workers, whether they advocate for social good and how they impact communities, all have an effect on a brand’s social score.

3. Governance: The internal workings of a company (how it’s governed) determine its standing in terms of driving positive change. Essentially, sustainably-oriented investors will look to support organizations that practice transparency and are committed to anti-corruption and diversity.

Why Does Sustainable Investing Matter?

Well, the superficial answer would be to say that sustainable investing helps create a better future. However, it’s crucial not to forget that brands with high ESG scores also have a better chance of reaching success, especially these days.

For instance, a recent PWC report revealed that half of all consumers make purchasing decisions based on ESG concerns.

So, knowing that buyers want to support environmentally friendly organizations, it’s easy to conclude that sustainable investments have a real potential to perform better in the long run compared to those that do not have a positive impact on the world.

How to Make Sustainable Investing Work for You

Getting started with sustainable investing might seem daunting, especially if you’ve never purchased stocks before. But the truth is, it doesn’t have to be. All you have to do is divide the entire process into smaller, bite-sized steps.

Determine Your Preferred Level of Involvement

Before you can get started with sustainable investing (or any other type of investing, for that matter), you must first determine how much of your time you’re prepared to give up.

For some people, investing is a full-time job that (sometimes) takes up more than 8 hours of their day. They hand-pick individual stocks, constantly monitor the market to discover opportunities, and usually generate their entire primary income through investing activities.

For others, investing is no more than a source of passive income, a way to make their money work for itself instead of losing its value sitting in a bank account. These investors usually invest in funds or let investment advisors make decisions for them based on a set of predetermined criteria.

Finally, it’s also worth mentioning that hobbyists can dabble in sustainable investing (or let robo-advisors make investing decisions for them) and can even automate the entire process with a minimum amount of input on their part by using accessible software solutions.

Naturally, all three of these options have their pros and cons. So, if you want to ensure you’re making the correct choice for your needs, you’ll first want to think about your preferred level of involvement, then take it from there.

ESG Funds Vs. Sustainable Stocks

Once you’ve determined the amount of time you’re prepared to set aside for sustainable investing, it’s time to choose the type of assets you want to acquire.

On the one hand, you could invest in ESG funds, like the SPDR S&P 500 Fossil Fuel Reserves Free ETF, which allows you to invest in companies that don’t hold fossil fuel reserves. This is an excellent way to support brands whose values align with your own without having to take on a hands-on approach to investing.

On the other hand, if you want to be more involved, you could research public companies and buy individual sustainable stocks. Yes, this does require more work. However, it also gives you a higher level of control over what companies you invest in, allowing you to support brands whose values align with your own.

Calculate Earnings

Finally, once you have an idea of what companies you want to invest in, don’t forget to calculate your earnings and see what returns you can expect.

Generally, those prioritizing earnings will prefer to put their money into high-yield dividend stocks with a generous annual payout.

But, if you’re looking for security (which is understandable considering this economy), you might prefer to opt for the ESG funds option. These hold the advantage of diversification, helping you minimize any potential losses.

Final Thoughts

There you have it, everything you need to know about sustainable investing.

Whether you choose to employ this practice to create an income for yourself or go with alternative routes is entirely up to you. But rest assured that if you care about the environment, you won’t go wrong supporting businesses that do too. And if you can make even a little bit of money in the process, well, that’s just an added bonus.