When you think about investing, you probably want your money to grow. But maybe you also want it to make a positive difference in the world while you continue pursuing your financial goals. That’s the foundation of sustainable investing — an approach that considers environmental, social and governance (ESG) factors alongside traditional financial analysis.
Sustainable investing allows you to support better business practices through your investment choices. It looks at how companies address issues ranging from climate change to worker well-being to corporate ethics. At its core, it’s about aligning investments with personal values while still focusing on long-term financial outcomes.
Here are the three main areas of sustainable investing:
- Environmental considerations include how companies respond to climate change, use natural resources and manage pollution.
- Social factors address workforce well-being, product safety and efforts to reduce social inequities.
- Governance focuses on corporate behavior, ethics policies and financial transparency.
You may wonder whether investing sustainably means sacrificing returns. Research suggests it doesn’t. New York University’s Stern Center for Sustainable Business reviewed more than 1,000 studies from 2015–20 and found that incorporating ESG factors does not inherently diminish returns, and in many cases is associated with improved financial performance. As with any investment approach, it’s important to focus on high quality investments that help support more consistent long term returns.
Sustainable investing can take several forms:
- ESG intentional strategies spread out your investments and have clear goals for choosing companies that follow strong environmental, social and governance practices.
- Sustainable thematic strategies focus on specific issues, such as clean energy or water conservation.
- Impact investments go a step further, targeting measurable environmental or social outcomes. Because they prioritize more narrow, specific objectives, they may carry higher volatility and potentially lower returns.
One concern you may hear about is “greenwashing,” which happens when companies or funds exaggerate their environmental efforts. To help prevent this, the U.S. Securities and Exchange Commission created a rule in 2023 that requires any fund with “ESG” in its name to keep at least 80% of its assets in ESG aligned investments.
Another challenge is data consistency. Today, 99% of S&P 500 companies report ESG metrics, according to the Center for Audit Quality, but different rating providers still use different methods. Looking at relative rankings can help you compare companies and mutual funds in a more consistent way.
Deciding whether to include sustainable investments in your portfolio really depends on your values and financial goals. You can build a well diversified portfolio with or without them. A qualified financial advisor can help you understand whether adding sustainable investments fits your overall strategy and makes sense for your situation.
As more companies disclose ESG data and more funds offer sustainable options, investors have increasing opportunities to align their portfolios with their values — without sacrificing their financial objectives.
This article was written by Edward Jones for use by Joe Oliver, your local Edward Jones Financial Advisor.
Edward Jones, Member SIPC
Joe Oliver is a lifelong Oxfordian, husband, father, and financial advisor with Edward Joes Investments. Joe services business owners and individual investors by helping them accomplish their financial goals. For a complimentary financial consultation, connect with Joe at Joe.Oliver@Edwardjones.com.
Joe Oliver, CFP®,AAMS™
Financial Advisor
2250 Baltimore Pike
Oxford, PA 19363
484-702-9311
www.edwardjones.com/joe-oliver
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