Is there a way to bridge the gap between building wealth and combating climate change? It always seems that ideas about wealthy individuals are conflated with thoughts about the perils of big business and damage to the environment.
The thing is, you don’t have to be evil to set yourself up for the future. Further, you can build your wealth by investing in companies that are doing their part to improving our future.
We’re going to talk about how to make sustainable investments today. Hopefully, the information below will help you to fill your portfolio with companies that have sustainability in mind.
Let’s get started.
A Guide to Making Sustainable Investments
It’s important to note that there are a lot of different names for “sustainable investing.” You might get confused if you start to do some research and see numerous names for similar things.
It can go by socially responsible investing, green investing, ethical investing, and more. What unites all of these ideas is the approach to investing that considers social or environmental impact.
In these schools of investing, there are a couple of ways that you can approach the process. There isn’t an exact science to ethical investing, so you can match your approach to your value system.
The degree to which the companies you invest in support the environment can be different depending on your standards. Some individuals invest only in companies that are built around the idea of improving and combating climate change.
There are a lot of businesses that follow that mission statement, so you won’t be out of luck when looking for investment opportunities. That said, narrowing down the pool in such a way can be limiting. You might not be able to meet your financial needs the way that you’d like to.
As a result, some people pledge to invest only in companies that don’t harm the environment, avoiding the companies to which we ascribe much of the ecological damage that takes place.
So, the angle you take is up to you.
Find Companies That Are Doing Environmental Work
The first thing on your checklist is to get out there and curate a list of companies that you’d consider investing in.
If your primary factor is the impact they have on the environment, that’s the place to start. This can be a difficult thing, but a little research online should point you in the right direction.
Start searching around for the companies that have the most impact in the areas you care about. When you peruse through a few different keyword searches and results pages, you should start to get a feeling for who the big players are.
You can then dig into the kind of work they do, their history, and the sort of impact that they’re actually having. If you can, try to find websites that offer lists of the most environmentally impactful companies in the areas you care about. Try keeping an eye on sites like Workiva that keep up to date on what companies are doing as well.
Then, go to the websites of those companies and look into them, see if they meet your standards, and add them to your list. Note that you’re not going to invest in all of these companies, but it just helps to have a solid list of investment options before you get started.
Look at Their Forecasts
It wouldn’t be smart to invest in a company just because they’re doing environmental work. There are a lot of companies out there doing a lot of good things, but some of those groups are going to fail.
Investing is an effort to improve your financial situation via the profit of other companies. Putting your money into green companies bolsters the efforts and presence of environmental action in the marketplace.
It’s a better alternative to investing in massive corporations that have long damaged our environment without thinking twice. Shifting that demand and funding, even just with our accounts, is a positive step.
That’s all to say that sustainable investing is the ethical choice, but you’re still investing to help yourself. You want to make money throughout the process.
So, look into the details of the companies that you’re thinking of investing in. What are their predictions? How have they grown over the years?
What other factors of the market does this company depend on, and is there any threat to those factors? These are all things that are important to think about when investing.
It’s easy to get sold on the dream, especially when the cause is so noble. It’s the right thing to do to support companies that are working to benefit the environment, but you have to discriminate between the successful and failing ones when you’re investing.
Great Places to Start Investing
Fortunately, the road has already been paved for you in some cases. Sustainable investing has existed for a number of years, so there are some tools that make it a little easier to navigate this financial niche.
One of the best options to look into is ESG funds. Mutual funds are investment opportunities that group a number of companies into one grouping and offer shares at low prices.
This is a way to invest in trends, niches, and groups of the market without putting all of your eggs in one basket. You reduce the risk when you distribute your investment over a wide range of companies.
“ESG” stands for environmental, social, and governance. The companies in these funds are graded on numerous factors within each of these respective categories.
Let’s take a look at each category and the things that make up their ratings. You’ll notice that ESG funds are unique because they touch on distinct areas of social, environmental, and governmental change.
Issues in those categories often depend on one another, but different individuals might have more interest in investing in one category rather than the other.
Environmental factors are arguably the most important in sustainable investing. The issues these funds are graded on are carbon emissions, air pollution, water pollution, response to energy initiatives, deforestation, waste, and water use.
The social factors included in ESG rankings involve how the company acts to better society in general. Again, this is a very broad category of actions that could be implemented in numerous ways.
That said, it’s possible to grade a company on whether it’s incorporating social change into its business model. Generally speaking, this means that a company focuses on human rights, inclusivity in hiring, racial diversity, and the wellbeing of its employees and community.
This aspect is a little less intuitive.
“Governance” refers to the way that a company’s board members and executives handle the rest of the company. Whether or not the company is transparent with its dealings, offers just shareholder rights, and distributes its earnings fairly all come into play.
If a CEO makes hundreds of times the salary of the company’s core employees, for example, that would be a bad thing. Governance also factors whether or not the company diverts its profits to charities or supports particular political campaigns.
Options for Starting Your Portfolio
You have a number of opportunities to start your portfolio in different ways.
For one, you could research and invest in all of the companies yourself. Personal research will allow you to identify companies that most align with your values. You can also have the final judgment on which companies you think will turn a profit.
That said, researching and analyzing companies isn’t as easy as it might seem. It takes time and effort, and you’re not always going to hit the nail on the head.
Robo-advisors offer an easier alternative to the DIY way of doing things. These “advisors” help you manage funds and operate on algorithmic terms to make the smartest mathematical suggestions.
If you stick to the advice of a Robo-advisor, odds are you will come out on top over time. You might miss out on some of the insights that your human judgment can offer, though.
Further, you can also put some money toward a personal advisor. This is someone who’s trained in investing and can make your portfolio shine in the ways you deem appropriate.
They’ll have leads on the most profitable eco-friendly companies and where to put your money. They cost a little bit of money or take a share of your returns, but odds are that a human being has the best insight into what the market is doing.
So, you’ll make more money if you spend money on a professional.
Want to Learn More About Sustainable Companies to Invest In?
If sustainable investments sound like a great way to diversify your portfolio, you’re in the right place. You need all of the information you can get when you’re putting your money on the line, and we’re here to help.
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