Why Sustainable Investing is Already a Major Trend

By: Andrew McShane

No longer a fad, sustainable investing has become a profitable trend

You are about to learn...

  • Why Sustainable Investing is Important
  • Is Sustainable Investing Right for You
  • How to Start Investing in Sustainability

There are a lot of phrases used in investing that can be confusing, particularly if you are just starting out.

The concept of sustainable investing is one of those areas that can be confusing unless you’ve been exposed to it on a regular basis.

Sustainable investing has become a major trend in recent years. Figure A below shows the rise in sustainable assets under management from several trillion in assets ten years ago to $12 trillion in assets more recently.

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What is Sustainable Investing?

What is sustainable investing exactly and how did it get started?

It wasn’t that long ago that investing was completely about how to maximize the return on your investment funds. That was the only consideration.

Investing in sustainability is not investing in companies with a negative impact on society or the environment. Areas to avoid will vary by investor group.  But stocks involved in areas such as oil and gas, tobacco and gambling are generally avoided by those interested in investing in sustainability.

Investing in sustainability considers the moral values of the company first to make sure it has a positive impact on society.

Only if the moral value of the company is considered to be positive, will sustainable investing disciples look at the financial metrics of a company for further consideration of an investment.

This type of socially responsible investing is not for everyone but there is a growing wave of folks who believe in it. In fact, there are many professionally managed institutional investors with equity funds whose investing strategies are purely dedicated to this type of investing.

The concept of sustainable investing is generally traced back to the mid 1980s. In light of the Exxon Valdez and Chernobyl at that time the United States formed the Sustainable Investing Forum (SIF). SIF, which is the source for the above chart, is generally recognized as a major resource related to sustainable investing.

Is Investing in Sustainability Right for You?

Investing in sustainability adds a layer of complication to the investment decision making process. You need to decide if you are willing to put in the effort do the additional research.

Many investors feel overwhelmed enough sifting through the financial information of a potential investment opportunity and don’t want the added stress of looking into sustainability metrics.

Other investors swear by the idea of investing in sustainability and see it as them doing their small part of make the world a better place.

How to Invest in Sustainability

Let’s say you are inspired by the idea of sustainability as part of your investment criteria. Let’s talk about how to invest in sustainability.

There are three ways to invest in sustainability:

  • Avoid companies that clearly not enacting positive social change as part of their core beliefs. These kinds of companies to avoid are mentioned above and include oil and gas, tobacco and gaming business.

This is the easiest of the three methods because it requires the least amount of work. All you need to do is avoid the obvious companies that don’t care about sustainability.

  • Invest only in companies that are impacting an amount of positive social change that meets a threshold level determined by you. This will require you to determine what level of positive social change is satisfactory to meet your investing criteria.

In addition, this will require some additional work to determine if the company meets that criteria. Depending on the complexity of the criteria you set, the information may be available in the quarterly public filings of a company. Or you may need to do some digging into separate documents.

  • You can invest in sustainability through a fund that will do much of the work for you. There are many mutual funds and ETFs that are dedicated to investing in sustainability. Many of them have performed quite well.

Here are two funds worth considering:

  • Morgan Stanley Global Opportunity Fund – $5 billion in assets, 17% annual return for the last five years
  • Brown Advisory Sustainable Growth Fund – $2 billion in assets, 12% annual return for the last five years

In Summary

Investing in sustainability is a large and growing area.

There are many ways to invest in the trend of sustainable investing.

Most importantly you do not need to sacrifice good investment returns in order to practice sustainable investing

This is an investment trend worthy of your consideration.

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