Investing in an intentional way can mean making a marked and positive difference in our world through capital. That's a pretty exciting prospect, but it isn't always as easy as it sounds. Fortunately, sustainable investing funds make it easier.
With an increasing number of sustainable companies going public (think no-kill meat alternatives and ocean power providers, just to name a few), now is the perfect time to indulge in sustainable investing funds.
How sustainable investing works
According to BlackRock, sustainable investing is all about building momentum. In particular, you are using capital to propel great ideas toward growth until they become mainstream. Your sustainable investing strategy may involve some mixture of impact, ESG (environmental, social, and governance), and SRI (socially responsible investing) strategies.
Sustainable investing funds' trends in 2020
A 2020 trends report from the Forum for Sustainable and Responsible Investment shows that sustainable investing is growing rapidly. From 2018–2020, sustainably invested assets under management in the U.S. grew by 42 percent, which brought the total value up to $17.1 trillion. The growth is a continuation of the sustainable swell that has been ongoing for years.
Most of the growth has actually occurred in ETFs. Sustainable investments within ETFs grew 200 percent during the same time period.
Issues like the Paris Climate Accord, UN Principles for Responsible Investment, social justice movements, and updated research all play a role in the development of sustainable investing.
Sustainable investing can be profitable
Investments that follow ESG criteria will likely be more profitable since profitability is a key priority when determining ESG stocks. However, SRI and impact investments are also likely to reap a return.
If you look at MPT (Modern Portfolio Theory), you will see that there is always some trade-off between risk and return. Since so many sustainable investing funds are new, most investors have yet to exit their positions. Rachel Browning of Denmark-based Simple spoke to Forbes. She said, "Only a handful of impact-focused funds have exited their investments, making it difficult to model the return landscape of such investments."
Despite that, many experts suggest that integrating sustainability into your investment strategy instead of keeping it as an afterthought is your best bet to increase value.
The best sustainable investing funds
The Dutch fund manager Robeco Institutional Asset Management has added 232 fossil-fuel producers to its “exclusion list.”— Paul Polman 😷 (@PaulPolman) November 1, 2020
The financial firm has become one of the clearest examples of a more transparent, no-nonsense approach to sustainable investing
Sustainable investing can be fun. Finding new ETFs that lead you toward capital gains is exciting because it's such a win-win.
For clean energy, two funds come to mind. The Invesco Solar ETF (TAN) has grown a massive 228.27 percent YTD. The Invesco WilderHill Clean Energy ETF (PBW) has grown 213.89 percent during the same period.
Growth for the Pax Ellevate Global Women’s Leadership Fund (PXWIX) hasn't been as dramatic, but it's a solid long-term option for someone seeking social justice in the form of gender equality.
The First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID) has grown 43.08 percent YTD. Vanguard’s ESG U.S. Stock ETF (ESGV) is the second-largest ESG-compliant fund on the market and it has risen 21.75 percent YTD.
Is sustainable investing a responsible way to invest?
Responsible investing depends on the individual. Your unique religion, environmental concerns, and social beliefs may change what responsibility means to you. Find a document that lays out the fund's holdings and make sure your beliefs line up with every (or almost every) company on that list.