If you’re the kind of person who limits single-use plastic, composts food, or walks somewhere when you can, congratulations: You’re likely a part of the approximately half of Americans (51%) who think they’re doing enough as an individual to help reduce the effects of climate change. But as we know, corporations carry substantial responsibility for climate change. Many of these companies are publicly traded, which means individuals can invest in them for good. 

Enter: sustainable investing.

Sustainable investing is a way for people to align their investments with their climate-friendly values. But can it really help such a big problem, and how does an individual get started? Let’s dig in. 

What is sustainable investing?

Sustainable investing is a way for investors to reap financial returns while also making a positive impact on society and the environment. At its core, sustainable investing involves aligning one’s investment choices with their values and beliefs, emphasizing the importance of ethical, social, and environmental considerations alongside financial factors. 

Investors in sustainable funds or companies typically support businesses prioritizing environmental stewardship, social justice, and good governance. This approach aims to contribute to a more sustainable and equitable world by allocating capital to companies that are committed to responsible practices and sustainable development.

Another term often used in place of sustainable investing is “impact investing,” which gets its name from investors seeking to make a measurable impact without foregoing profit. You may also hear reference to ESG investing (environmental, social, and governance factors) which refers to measurable data, though federal regulation for ESG labels is limited.

Here are a few examples of how sustainable investors aim to create a positive impact:

• Investing in renewable energy companies
• Investing in traditional energy companies but using shareholder votes to incorporate renewable energy practices or proponents into the organization
• Investing in sustainable farming
• Investing in carbon emission reduction or carbon offset
• & much more!

Does impact investing for the environment really work?

Unlike traditional investment approaches that solely focus on financial returns, impact investing specifically directs funds toward projects and companies that actively address environmental challenges. By allocating money to these efforts, climate impact investors not only support businesses that are environmentally conscious but also contribute to the global efforts aimed at mitigating climate change. 

Plus, impact investors play a role in encouraging companies to adopt sustainable practices by making their environmental performance a criterion for investment.

A couple of caveats:

1. Regulation: Until the financial markets better regulate environmental claims by public companies, it’s up to individuals to suss out who’s legitimate and who’s greenwashing.

According to Investopedia, greenwashing “involves making an unsubstantiated claim to deceive consumers into believing that a company’s products are environmentally friendly or have a greater positive environmental impact than they actually do.”

Investors can look up financial documents through the Securities and Exchange Commission (SEC) or use resources such as Fossil Free Funds, which grades funds based on their exposure to the fossil fuel industry (even if that exposure is hidden).

2. Market cycle: Market performance isn’t always top-notch. Long-term investing over the course of many years or decades is historically less risky than short-term investing over the course of days, months, or even a few years. 

With this in mind, a meta-study on ESG and financial performance from NYU cites that in Q1 2020, at the start of the COVID downturn, 24 out of 26 ESG index funds outperformed their conventional counterparts. These funds credited their increased resiliency to ESG standards.

It’s worth noting that investor activity was high during this time (you may recall the Gamestop saga), but it’s interesting nonetheless. The study also reports that investments taking a long-term focus are 76% more likely to achieve neutral or positive returns than those with a short-term focus.

Next steps: How to get started with sustainable investing

The first step in getting started with a sustainable investing strategy is to look at your existing portfolio if you have one. See if there’s anything you want to remain invested in and any particular industries you want to divest from.

If you are starting your investing journey from scratch, make a list of the industries you want to avoid before investing. Do your due diligence to ensure you’re investing in reputable funds or companies and that they do what they say (i.e. make sure they’re not greenwashing).

To make it easier on you, consider a sustainable portfolio from a reputable robo advisor. For example, Morningstar and Ellevest are two robo advisor platforms (meaning they invest using a proven algorithm and all you have to do is deposit money) that offer sustainable portfolio options.

To learn more about sustainable investing, order the e-book Investing for the Environment by author and finance journalist Rachel Curry. HALF of all proceeds go to support RegenAll in their efforts to combat the climate crisis and reduce carbon emissions. 

You can connect with Rachel on her LinkedIn or at hi@writingsofrachel.com.

Rachel Curry is a journalist based in Lancaster, Pennsylvania, contributing to publications like CNBC and LNP. Her work focuses on finance and technology on a global scale, as well as local issues impacting her community. See more of her work at www.writingsofrachel.com, and contact her at hi@writingsofrachel.com or linkedin.com/in/rachelcurry95.