Sustainable investing and how to align it with your values

Depending on your personal values, you may have moral objections to certain types of companies. In my experience, this has led some people to shy away from investing altogether for fear of accidentally funding something they think is wrong. This is a basic guide to sustainable investing, explaining how you as an investor can grow your personal net worth while aligning your investments with your values.

What is sustainable investing?

Sustainable investments are typically evaluated considering three different factors: environment, social impact, and corporate governance. This is also called ESG. Unlike passive investing in index funds, sustainable investing requires a deep dive into the impact of each company.

This is sometimes done by experienced individual investors, but is often more effectively done by investment managers who have the tools to evaluate each company. Fund companies often weigh each category and assign sustainability scores to companies. This determines whether a company can be included in a sustainable portfolio. Fund managers have different criteria for sustainability, so it’s important to review your selection criteria to see if they align with your values. Working with a qualified financial professional can simplify this and ensure you reach your financial goals.

Investors seeking to select individual companies on their own are urged to exercise caution, as this may pose a disproportionately high risk to the expected return. You can have sufficient diversification while investing sustainably.

environment

There are many ways in which companies can influence the environment that investors pay attention to. These include a company’s environmental policy, greenhouse gas emissions, waste policy, impact on natural resources, pollution levels, and animal welfare.

In my experience, environmental portfolio standards are the least variable across fund companies. This is because many investors seeking sustainable funds have aligned priorities.

social impact

Social impact is one of the broadest definitions of sustainability. Basically, social impact looks at the impact a company has on society. Funds may include a variety of social priorities, including:

• Aligning investments with particular religious beliefs or practices
• Do not engage in exploitative labor practices such as sweatshops
• Mission aligned with diversity, equity, and inclusion
• Avoid companies that contribute to health crises and addictions, such as tobacco and certain pharmaceutical products

If social impact in your investments is a priority, it’s important to think through what kind of social impact you want your investments to have and find a fund that invests accordingly.

Corporate governance

The term corporate governance focuses on the leadership of a company. Some investors may not want to invest in a company that they generally like but whose leadership disagrees with. Let’s say you have a company that has the best environmental policies and has a positive impact on society. But let’s say your CEO is a total bully, and you end up with high turnover and inconsistent product.

Corporate governance standards may include:

• Corporate accounting and financial transparency
• High levels of integrity among those in leadership roles
• Hiring diverse leaders
• Accountability to shareholders
• Reducing and disclosing conflicts of interest

If investing in companies with strong corporate governance is a priority for you, then again, think carefully about your own priorities and make sure the fund’s mission aligns with your priorities. It is important to make sure that.

practice everything

As we’ve discussed, it’s possible to increase your net worth while aligning your investments with your values. When it comes to sustainable investing, it’s still important to build a diversified portfolio with your goals and risk tolerance in mind.

Consider a 40-year-old investor with a moderate risk tolerance who aims to retire at age 55. She wants to invest in a sustainable investment portfolio according to her risk tolerance. In this investor’s case, she could have her 60% equity portfolio split into small, medium and large companies that are globally diversified and pass environmental, social and governance filters. there is. Since she is a moderate investor, we also want some of her portfolio to be fixed-income investments, i.e. fixed-income investments. The bond could be a corporate bond from a company you have already filtered. It may also include government debt that meets the same criteria set by investors.

After all, if sustainable investing is a priority, working with a qualified financial professional can simplify this process and align your investments with your values.

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