Socially responsible investing (SRI), or as we like to refer to it, sustainable investing, is a powerful tool. Being intentional about where your money goes is an effective way to make a lasting difference on a small and large scale.
But with sustainable investing being a relatively new concept, it’s natural to have some questions about where it fits into your portfolio and what effect it has on society. In this blog, we’ll be covering the following details to give you a better look at why sustainable investing could be a great option for you and your portfolio.
- Why sustainable investing is a practical option for my portfolio?
- How much of an impact does sustainable investing have?
- How does the performance of sustainable funds compare to traditional funds?
We think we’ll surprise you!
Why Woven Capital Loves Sustainable Investing
At Woven, we’re passionate about sustainability and the ability it gives investors to connect their money with their values. As the climate crisis continues, it’s more important than ever to align your investments with like-minded, environmentally focused companies.
Evidence Shows That Sustainable Investing Can Reduce Carbon Emissions
We help clients construct a diversified portfolio using traditional risk management techniques but with a sustainable tilt. This way, you can have your cake and eat it too.
In fact, a recent report by Dimensional Funds shared this conclusion:
“Historically, it has been possible to reduce exposure to companies with high greenhouse
gas emissions while maintaining sound investment principles.”1
Their findings also indicate that using sustainable funds can reduce carbon emissions by nearly 80% compared to the Russel 3000 benchmark!
Let’s take a closer look.
So, you can positively impact the environment and your portfolio just by remaining conscious of the type of companies you invest in. Sustainable investing opens up new opportunities for investors to build wealth without sacrificing their values.
How To Keep Developing a Sustainable Portfolio
If you’ve followed along with our blog, you know that sustainable investing is a core element of our philosophy. But one of the best parts about sustainable investing is that it helps you support companies with green initiatives (and avoid those without), like
- Lowering their carbon footprint
- Becoming carbon-neutral or negative
- Using clean energy
- Reducing water consumption
Remember, cultivating a sustainable portfolio is just as much about the companies and industries you invest in and avoid investing in.
For example, you may not want to be invested in oil companies or major polluters because of their environmental impact. Conversely, you may seek out companies or investment funds already sustainable, developing clean initiatives, and aligning with your values.
While it may sound like a significant undertaking, you don’t have to “go green” overnight. It’s all about being intentional about your goals and then shifting your investments to enhance and enrich those goals. You may be surprised that what started with a couple of funds turned into most of your portfolio over time.
Sustainable Investing Brings More Value To Your Money
At first glance, it feels like sustainable investing is less focused on growing wealth than it is on protecting the planet. But like we said before, this isn’t necessarily the case.
In reality, the negative effects of climate change cost the world billions. At current emission levels, the annual cost of CO2 emissions is equivalent to between 1.5% and 5% of the global economic output.2
Neglecting to focus on alternatives will cost the governments, corporations, and, ultimately, individuals more in the long run.
Sustainable investing is important because it helps you contribute to a better world. It’s important to remember that your dollars have immense value to companies, and the tide is turning green.
Over the last two years, people have invested over $1 trillion in ESG-related funds, and it’s starting to influence how companies approach ESG and other sustainability factors.
So when you intentionally decide to invest, save, and give according to your values, you’re doing your part to protect the planet and reduce the costly effects of carbon emissions.
Here’s how you can measure the impact of your investments with SRI.
Are Companies Holding Up Their End Of The Bargain?
Keeping companies accountable for their promises to go green is an important part of sustainable investing. Those of us who invest in a socially conscious way want to know that the companies we’re financially supporting are following through.
There are several tools available to help individual investors evaluate their options. These include:
- Morningstar ESG screener
- As You Sow
- Sustainable Investment Mutual Funds and ETFs Chart
- Sustainalytics ESG risk ratings
Watch Out for Greenwashing
As the popularity of sustainable investing grows, more companies are being called out for “greenwashing.” This tactic attracts socially responsible investors without actually putting in the work to pursue environmentally focused initiatives.
These companies create campaigns or offer misleading claims about their climate change initiatives. But in reality, they are not following through on their promises to investors. The priority of these companies is typically to boost public opinion of the company, not actually pursue climate-focused changes.
ESG screeners and third-party companies like those mentioned above are great for helping investors avoid these types of companies.
Invest In Transparent Companies
If you’re interested in investing in individual stocks, do some research to find potential candidates. Pay close attention to those who offer transparency and reporting regarding their environmental efforts, and take note of any company flagged for false or misleading claims.
With sustainable investing’s growth in popularity, some companies are trying to take advantage of investors. Generally, if a company can’t provide documentation or proof of its efforts, consider crossing them off your list.
Another option is to work with your financial advisor to find “green” ETFs or mutual funds. These investment options include companies that have been prescreened for their environmental efforts, which takes the burden of selecting individual companies of the investor’s plate.
Sustainable Investing with Woven Capital
If you’re new to sustainable investing or looking for guidance from an advisor, our firm specializes in developing values-driven portfolios for environmentally conscious investors.
As sustainable investing continues growing in popularity, so do the choices you have to invest in. We can help you work through your options, develop a game plan and create a diversified portfolio based on your long-term goals and values.
Don’t hesitate to reach out to our team today; we look forward to getting started.
Sources:
1 Addressing Climate Risks in Portfolios, Dimensional Funds2 The Economics of Climate Change