Given the world’s ever-growing environmental challenges, more and more investors are taking a hard look at how the companies they own (or are thinking about owning) impact the environment. This is especially true for investors that follow a “sustainable,” or “environmentally conscious,” investment strategy.
But what does it mean to invest sustainably? And how do you go about doing it correctly?
There are a lot of misconceptions out there when it comes to sustainable investing. We’ll explain what is sustainable investing and how you can get started.
What Is Sustainable Investing?
Sustainable investing is an investment strategy that takes into account the social, environmental, and financial effects of the companies you buy stock in. It is about investing in companies that are profitable, but that also take steps to minimize their negative impact on the environment and their employees.
As such, a sustainable investment strategy requires you to consider more than the company’s financial health and earnings. It means taking into account the company’s processes, employees, and partnerships. It means asking questions such as whether the company’s practices are environmentally friendly, how it treats its employees, and whether it partners with organizations that share its values.
Generally, investors who follow a sustainable investment strategy are focused on three main areas: environmental, social and corporate governance (ESG).
- Environmental – Sustainable investing is focused on companies with a lower carbon footprint. This could include energy efficiency, use of clean energy and carbon emissions.
- Social – Sustainable investors who focus on social impacts look at issues such as diversity, employee benefits and employee relations.
- Corporate governance – Corporate governance refers to how a company is run. Sustainable investors who focus on governance want to ensure company managers are acting in the best interests of the company.
How to Implement a Sustainable Investment Strategy
Here’s how you can implement a sustainable investment strategy:
Educate Yourself About the Sustainable Investing Movement
Sustainable investing is more than just being concerned about the environment. It’s about looking at each and every aspect of a company to determine if it is socially responsible.
Research the Companies You Own or Are Thinking About Buying
Pick a company that has a solid reputation for being socially responsible—and is likely to stay that way.
Try and understand the company’s entire business model, not just its products. Dig into its supply chain, what materials it uses, and who it partners with. A company that is good for the environment and society is also likely to be better financially since it’s focused on creating positive outcomes for those stakeholders and not just shareholders.
Stay True to Your Sustainable Investing Strategy
Don’t become complacent, and remember that there is always room for improvement. Staying on top of what’s going on in the world and in your company will help you make better, more socially conscious investment decisions.
The Bottom Line
The world currently has a massive problem with climate change, pollution, and other issues related to a lack of sustainability. Investing in sustainable companies can play a huge role in solving some of these issues.
But sustainable investing isn’t just about making a positive difference. It’s also about making money. To do both, you need to focus on long-term investing and find companies that are making a positive impact in their fields.