The new year is a time when many individuals review and update financial and investment goals. With critical social and environmental issues dominating headlines this past year, this is a particularly good moment to look into sustainable and impact investing as part of financial planning.
Pursuing Sustainable Investment Options
Sustainable and impact investors pursue mutual funds and other investment options that consider environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact. This can include labor rights, racial and gender diversity, climate change, sustainable agriculture and corporate executive compensation.
Yost Partners was up 0.8% for the first quarter, while the Yost Focused Long Funds lost 5% net. The firm's benchmark, the MSCI World Index, declined by 5.2%. The funds' returns outperformed their benchmark due to their tilt toward value, high exposures to energy and financials and a bias toward quality. In his first-quarter letter Read More
In the United States today, 1 in 3 dollars of professionally managed assets are invested using sustainable investment strategies. There was a 42 percent increase in these assets—from $12.0 trillion to $17.1 trillion between 2018 and 2020.
According to a Morgan Stanley study, 85 percent of individual investors surveyed are interested in sustainable investing, up 10 percent from 2017. Among millennials, 95 percent are interested, up 9 percent.
Why are so many individuals increasingly interested in this investment approach? Some seek investment options that overlap with their personal values and ethical concerns, such as weapons avoidance or animal welfare. Others want investments that, like their charitable giving, contribute to important societal or environmental issues such as women’s advancement and addressing climate change. And yet others are seeking financial outperformance over the long term—a growing body of academic research shows a strong link between positive ESG outcomes and competitive financial performance.
For a quick overview of sustainable investing, check out Sustainable Investing: An Online Course for Individual Investors. This free course from the US SIF Foundation introduces sustainable investing and summarizes the available investment options with links to additional resources.
Below are some options for investors looking to have an impact with their investments:
Community-investing options (CDFIs)
Opening an account in a community development financial institution (CDFI), such as a credit union or mission-oriented bank, can help low-income, low-wealth, and other disadvantaged people and communities join the economic mainstream.
CDFIs typically finance small businesses, non-profits, commercial real estate and affordable housing in low-income urban, rural and Indigenous communities. More information can be found here and additional sources for community development banks and credit unions include: Community Development Bankers Association, Inclusiv, National Community Investment Fund and Opportunity Finance Network.
Other community investing options are available through retail notes and loan funds, which are fixed income products. Calvert Impact Capital and Capital Impact Partners are two organizations that offer retail notes.
Mutual funds and ETFs
If you are already invested in mutual funds and exchange traded funds (ETFs), learn about whether and how the funds utilize environmental and social criteria.
A list of selected sustainable funds can be found here. Clicking on the screening and advocacy tab will reveal which environmental or social issues are considered in the portfolio.
As You Sow offers a free online Invest Your Values tool that screens mutual fund holdings against seven specific ESG issues—deforestation, fossil fuels, gender equality, guns, weapons of war, tobacco, and prisons. You may ascertain how your fund scores in comparison to other funds and check out top scoring funds, such as those with the best gender equality or least fossil fuel exposure.
If you are invested in a 401K, 403B or other type of defined contribution retirement plan, take a moment to check if you have sustainable investment options. If you don’t, contact your human resources department and ask if one or more sustainable fund options can be added.
Professional investment advice
Financial advisors can help you figure out if your investments are appropriate for your age, investment objectives, risk tolerance and return expectations. A good place to start is the directory of financial services offered by US SIF members, which includes advisors with sustainable investment expertise.
You can also choose to invest with a robo-advisor that offers sustainable investment options. The automation and algorithms of these online wealth management services may enable you to develop a portfolio of funds that reflect your values, risk tolerance and investment goals, often with minimal fees. Examples of robo-advisors and other similar online platforms with sustainable investment options include Aspiration, Betterment, Earthfolio, Impact Labs, OpenInvest, TIAA and Wealthfront.
Make a New Resolution
It’s easy to take a first step to invest for social and environmental impact. There’s never been a better time to start.
About the Author
Lisa Woll, CEO at US SIF: The Forum for Sustainable and Responsible Investment