Sustainable Investing: What Is It and Why Is It Important?

There has been a trend of increased interest in investing in sustainable assets over the last decade. Financial firm Morgan Stanley, for example,  reported record percentages of ESG in their assets under management; in 2023, their ESG AUM read 7.9% of the total AUM.  
Sustainable investing principles go beyond financial returns and positively impact the environment and society. Whether you’re managing your own investments or working with family office financial services, this will help you understand ESG — environmental, social and governance — investment factors.

What is Sustainable Investing?

Sustainable investing, also known as ESG investing, refers to choosing investments based on ethical, social, and environmental criteria. 

• Environmental factors: This includes the extent to which the company is affecting the environment, from carbon footprint to waste management and resource conservation.
• Social factors: This includes the treatment of employees, customers, and communities, as well as labor practices and human rights records.
• Governance factors: Governance practices used in a company include executive compensation, board diversity, and transparency.

Why Choose Sustainable Investing?

Ethical Impact

Value-based investing allows investors to make positive contributions to the environment and society. Whether it is carbon emissions reduction, promotion of human rights, or fair labor practices, you can align your ESG values with your investments.

What About ROI?

When it comes to financial risk, ESG assets offer similar risk than other types of investments. When it comes to return on investment, Morningstar and other sources report that ESG funds can fare the same or, in some cases, better, than non-ESG. Scrutinize potential ESG investments the same as you would any other types of investment, based on your tolerance for risk, your personal financial goals, and your short- and long-term investment plans.  

How to Get Started with Sustainable Investing

The following will help you understand what to look for as you investigate EST investment opportunities; it’s not intended to be investment advice. Make sure you check with a trusted financial advisor before trading.  

What to Look For in ESG Investments

There are numerous investment vehicles that can be used for sustainable investing, each with its own advantages and disadvantages. Some of the most popular options include:

• Sustainable mutual funds: They invest in companies that have met certain ESG criteria. They provide professional management and diversification. All of the major investment platforms — Schwab, Fidelity, T. Rowe Price and Morningstar, for example — provide tools for investors to narrow their searches based on a variety of criteria, including ESG. 
• Exchange-traded funds (ETFs): ETFs, including those tracking sustainability indexes like the S&P 500 ESG Index, can be a cost-effective way to invest systematically. They offer lower fees and the flexibility of intraday trading. Tools like Vanguard’s ETF Screener and BlackRock’s iShares Sustainable ETFs help identify options that may be aligned with your goals.
• Impact investing funds: Impact investing differs from ESG investing by focusing on achieving measurable, positive social or environmental outcomes, rather than just assessing companies’ practices. These funds directly invest in projects addressing critical issues like renewable energy, affordable housing, or healthcare access, intentionally prioritizing impact alongside financial returns. This targeted approach ensures investments create tangible change while delivering financial results.

Diversify Your Portfolio

Diversification brings down the risk that is inherent in every portfolio. So, divide your investment amount across several asset classes, sectors, and geographies to minimize the market value’s fluctuation and enhance portfolio performance. You’ll find that ESG exists in every type of investment — stocks, bonds, mutual funds, and even real estate.

Monitor Your Investments

Regularly check on your investment and the ESG practices of the companies in which you are investing. Keep an eye out for sector trends, a change in regulation, and news about sustainable investments. 

ESG Investing: Is It Worth It? 

Sustainable investing, therefore, could have the potential for long-term financial sustainability. Like any investment, ESG has its potential risks and rewards. The best way to protect yourself and your family’s wealth is to work with a professional. If you don’t have that option, find two to three credible sources or market experts and follow what they say about current trends, ESG and markets. Diversify not only your investment portfolios, but also your sources of financial information and advice.