Are we witnessing humanity evolve right before our eyes?
People are becoming more aware of their actions. They’re recognizing that their choices have lasting consequences. The consumption and investment decisions [link] we make, impact the world in which we live.
Millennials and younger generations are leading the change towards responsibility. Their efforts are increasing and this movement is growing.
A report from Pew Research shows that Millennials have taken over Baby Boomers as the largest segment of the population. They’re over 72 million strong and data from Morgan Stanley reveals that 8 out of 10 of them are interested in sustainable investing.
These members of society are entering their prime wealth creation years. They’re also set to inherit financial windfalls from their parents. As they do, the demand for green investments will grow. This means eco-friendly investing is sprouting and will flourish in the years that come!
Younger generations are less concerned with the short term. Instead, they’re focusing on the lasting effects their actions and money will have on the world.
According to the Forum of Sustainable and Responsible Investment (US SIF), sustainable investing is an investment discipline that considers environmental, social, and governance (ESG) criteria. Stakeholders use this information to ensure their capital has a positive societal impact while generating competitive returns. This form of investing is also known as green investing, impact investing, and conscious investing.
ESG criteria helps investors evaluate potential assets. They act as guidelines that screen investment opportunities and their effects.
Sustainable investing examines the environmental effects that a company has. Research gets completed to find out how businesses are handling the resources they consume and the waste that’s produced. These investigations look at the company’s sustainability, emissions, and how they may be contributing to climate change.
Conscious investing also looks at social aspects. It reviews the ways companies manage and treat their staff, community, and suppliers. They’re interested in finding out if socially conscious businesses are working with others that have similar values.
The social aspect considers human rights and diversity, too. It looks at if and how organizations are including people from different backgrounds. Often, more diverse companies serve more people, grow faster, and produce larger profits!
Governance deals with a company’s leadership, their pay, and shareholder’s rights. It helps affirm that these companies are using good and accurate accounting practices.
This principle addresses conflicts of interest, too. It looks to see if companies get special treatment for political contributions or their choice of board members.
Governance also reviews shareholder rights. It seeks greater transparency and wants investors to be able to vote on important business issues.
Most companies and investment funds won’t pass every test in each ESG category. So, conscious investors need to choose the areas that are most important to them.
In the past, most people avoided conscious investing. They thought they had to choose between doing the ‘right’ thing and earning a good return.
Today, many studies reveal the exact opposite. They’ve determined that avoiding green investments hurts your portfolio’s performance!
According to the US SIF the trend of sustainable investing is growing. Between 2016 and 2018 it increased over 38% and today there’s over $12 trillion invested in eco-friendly projects!
The growing popularity of conscious investing is making professional money managers re-evaluate their investment philosophy. Many are considering the impact their investment decisions have on the world and future generations.
Stakeholders are using ESG criteria as a way to practice responsible ownership. They’re supporting companies with similar values and morals as their own. Many are finding peace of mind and experiencing better financial wellbeing, too. They’re thrilled to own companies that aren’t discriminating, destroying the environment, and focusing solely on profits.
Also, sustainable investing helps owners avoid greater financial risks. Organizations concerned with ESG are more likely to spend on research and analysis. This increases the chances they’ll find and avoid pitfalls, which keeps money in shareholder’s pockets!
Many of these organizations are trying to solve some of the world’s toughest challenges, too. They’re finding ways to conduct business better and fighting to reduce the harmful effects of reckless capitalism. Both of which are putting them in some of the best possible positions for growth and success!
There are many ways to practice sustainable investing. You can buy ETFs, index funds, or invest through apps.
The US SIF keeps track of different funds and their ESG efforts. Search their list based on the amount you want to invest first. Some of them have large account minimums. Then, review their ESG criteria and avoid the ones that have a high total expense ratio.
Also, review your current and future investment decisions on Yahoo! Finance. It gives companies ESG Risk Ratings, which show the impact your capital is having.
There are even apps that help you invest sustainably. A few of them are Earth Folio, New Day, and Sustain Folio.
According to a recent article on Morningstar, 72% of sustainability funds ranked in the top 50% of their investment category. Even more impressive is that all 26 ESG funds have outperformed their traditional index fund peers so far this year!
Conscious consumption and sustainable investing are not fads. They’re the future and will continue to thrive in the years that come.
You no longer have to trade social responsibility for performance. Use ESG criteria and grow your nest egg at the same time. It will benefit you, your children, and the world as a whole!
How will you practice sustainable investing? Comment below.
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