Sustainable investing is a concept I don’t hear people talking about enough. After all, investing is about making money, right? But when you invest in companies, you support them and thus their practices, which means it’s important to take into account sustainability.

When I first started investing in stocks, I learned what sustainable investing meant, but I saw investing purely as a way to grow your wealth rather than effect change.

But this is not, in fact, true. Even by just investing in an index fund like the S&P 500, you’re indirectly supporting companies that mistreat their workers or have a harmful impact on the world.

If you invest more intentionally, taking into account sustainability, you can invest in companies with good practices that will help to create a better future.

What is sustainable investing? 

“Sustainable investing is about investing in progress, and recognizing that companies solving the world’s biggest challenges can be best positioned to grow. It is about pioneering better ways of doing business, and creating the momentum to encourage more and more people to opt in to the future we’re working to create. Through the combination of traditional investment approaches with environmental, social and governance (ESG) insights, investors ranging from global institutions to individuals are taking a sustainable approach to pursue their investment goals” –– BlackRock. 

ESG

ESG is an acronym that stands for Environmental Social and Governance. These three terms encompass what sustainable investing means and all the different factors to consider. 

Environmental

“An environmentally friendly investing objective can include companies that produce renewable and sustainable energy, enhance energy efficiency, source raw materials using eco-safe methods, use little or no hazardous chemicals in their production process, limit waste, and prioritize recycling. Examining environmental factors can reveal which companies are responsive to consumer demand for sustainable practices” –– Fidelity.

Social

“Positive social investing objectives focus on companies that consider the impact upon all stakeholders, such as seeking gender equality, providing healthy working conditions and lifestyles, addressing wealth inequality, and showing a commitment to charitable endeavors, among other factors. A focus on social themes can identify businesses that demonstrate a commitment to a diverse and inclusive workplace” –– Fidelity.

Governance

“Strong corporate governance systems entail having policies and principles that address potential conflicts of interest among stakeholders (e.g., managers implementing policies that benefit themselves, rather than shareholders), and including an independent board and audit committee that seek to protect shareholders over management. Attention to governance can uncover which companies are committed to diverse board composition and shareholder-friendly policies” –– Fidelity.

Sustainable investing growth

Over the past few years, more and more money has been flowing into sustainable funds as you can see from this chart: 

“Sustainable investing is a strategy where you invest in a way that benefits the environment or society. It can be as simple as avoiding companies or industries whose products conflict with your objectives, morals, and values. You can also invest in ways that you believe will advance certain goals. You may hear sustainable investing referred to as ethical investing, impact investing, socially responsible investing, and values-based investing” –– The Balance.

By carefully selecting the companies you invest in, you can help to support the things you believe in and create a better world.

Vote with your dollars

When you invest in a company, you are helping to increase its stock price. This has a significant effect on how a company is perceived, how much press they get, how many new customers are acquired, and the companies ability to raise money. 

By investing in companies, you are supporting their products and practices, which isn’t something all investors necessarily consider. But the truth is that just like voting in an election, you can use your money to support the things you believe in and affect change. 

Innovation

Investing in innovation, although not explicitly defined as a part of sustainable investing, it is a crucial part of shaping a better world. Think about it. Most of the world’s biggest problems, such as climate change, aren’t solvable with current technology.

Many of the biggest problems require new technology, and not only can innovative companies help to solve problems, but companies with important solutions (like Tesla for example) can stand to benefit financially. Innovative solutions will inevitably be in high demand, which in turn will lead to significant profits for a company and its shareholders.

This is why looking for innovative companies is such a crucial part of sustainable investing. 

How to invest sustainably 

There isn’t just a button you can press to start investing sustainably. You have to take the time to research the companies and funds you’re investing in to make sure they have good practices and are sustainable.

When it comes to individual stocks, this is relatively straightforward. Start by researching every company you invest in to get an idea of their practices when it comes to their workers and the environment. Additionally, find a summary of all the products/services they provide because many companies sell a host of different things, some of which might be bad and not immediately apparent.

Resources 

Here are some resources you can use to learn about the sustainability of companies: 

S&P Global ESG Scores is a resource where you can look up a company’s ESG score (Environmental Social and Governance score.) They use publicly available data as well as information submitted to them by companies to calculate an ESG score. You can see a breakdown of the score and all the factors that influence the companies score.

Worlds Most Ethical Companies is a website that releases a yearly list of the most ethical companies around the world. You can browse the list of companies that are selected to have outstanding sustainability scores.

Sustainable index funds

But just taking sustainable investing into account for the individual stocks isn’t all that matters. When you invest in broad index funds, you’re investing in many different companies, and in terms of sustainability, some are good, and some are bad. 

For example, if you invest in the S&P 500, you’re automatically investing in companies with questionable practices that pollute, treat workers poorly, or have harmful products. 

To avoid investing in these types of companies but still maintain the benefits of diversification, you can invest in a sustainable index fund. There are many different sustainable index funds, but the largest is the iShares MSCI KLD 400 Social ETF (ticker symbol DSI). This fund tracks the MSCI KLD 400 Social Index, which is an index of companies with high ESG scores.

And interestingly enough, this index has history beat the S&P 500, while investing in companies with good and sustainable practices.

Sustainable ETFs

You can also invest in sustainable ETFs, made of companies trying to fix problems like climate change, and pollution. Instead of only investing in a fund made of companies with high ESG scores, you can invest in ETFs comprised of a specific type of company. For example, you could invest in a clean energy or an electric vehicle ETF. 

Here you can look at a list of sustainable ETFs. 

How you can start investing as a teenager

If you don’t already invest as a teenager, you can start by opening a custodial investment account as a teenager. 

“The term custodial account generally refers to a savings account at a financial institution, mutual fund company, or brokerage firm that an adult controls for a minor (a person under the age of 18 or 21 years, depending on the laws of the state of residence). Approval from the custodian is mandatory for the account to conduct transactions, such as buying or selling securities” –– Troy Segal, Investopedia.

Essentially, with the approval of your parents, you can start investing in the stock market and help to build the future you want to see.