Sustainable investing is talked about more than ever now that younger generations are beginning to think more seriously about their financial futures. With more investors looking to put their money where their morals are, we have the opportunity to look at our investments with fresh eyes—and to do some good in the world.
The hype with sustainable investing comes from a wave of people who have realized that they want their money going toward progress in areas like environmentalism and social justice. Those same investors also shy away from companies that they believe may not have the best intentions. Due to this ever-growing mentality, we’ve seen a dramatic increase in sustainable investing. According to a 2018 report from the Global Sustainable Investment Alliance, “assets under management using sustainable strategies grew from $8.7 trillion at the start of 2016 to $12 trillion at the start of 2018, an increase of 38 percent.”
The real question here is: What’s all the fuss about, and should we be getting on board?
The Motivation Behind Sustainable Investing
Millennials and Gen Z are more socially-conscious groups than those who came before them, generally speaking. We see it every day—all over the news, social media, and especially in the ways they spend their money. It is not abnormal for a person of these generations to boycott a brand that they feel is working against social issues. They view corporate greed as fundamentally corrupt and put their money behind local businesses and companies that they see making an effort toward change.
These generations have definitely spurred recent conversations surrounding sustainability in investments; however, socially responsible investing isn’t a new concept and is not reserved for only young people. It could be quite a solid investment strategy for anyone who is socially conscious—if planned well.
Could Sustainable Investments be Lower Risk?
Social responsibility is just one motivation for sustainable investing. Some consider investing in Environmental, Social, and Governance (ESG) companies as a way to potentially lower their risk. ESG investments are judged based on their efforts in the three categories the term is named for—environmental, social, and governance.
We believe these companies may be seen as potentially lower-risk investments because they are less likely to have backlash for socially irresponsible behavior. For example, if it comes to the public’s attention that a company is polluting water and tearing down forests, there will be millions of people who will speak out against that company, which is very likely to lower its stock price. From that perspective, it is possible that socially responsible investing could lower your risk factor if you have a broadly diversified portfolio that is suitable for your time horizon and risk tolerance.
What to Consider When Investing Sustainably
There are several different ways to partake in socially responsible investing. One way is to invest in ESG companies, as we mentioned previously. If you consider an ESG investment, though, it’s important to note that it isn’t common for one company to qualify for more than one ESG category. An investor would usually choose an ESG investment that aligned most closely with their values. For example, if you are passionate about social justice, you would look for companies that uphold those values as well.
You can also invest in other ways to ensure that your money is going toward your cause of choice. Some consider investing in organizations to help them reach a financial goal that will allow them to make a positive change in their community. This type of investment isn’t motivated by financial return primarily, but instead by contributing to social progress.
However you choose to invest, your financial advisor can help you plan a socially responsible strategy.
Your Financial Advisor Cares About Your Goals
Is sustainable investing something that you’re interested in? If you are ready to discuss or build a strategy that would put your money toward the causes you care about, reach out to your advisor. They can help you align your financial plans with your values while still focusing on potential.
Southwestern Investment Group is here to help. Contact us today to schedule a consultation.
