It’s no secret that the world economy has been trending towards more sustainable practices in recent years, but plenty of companies still don’t practice what they preach.
Fortunately, there are also plenty of ETFs available that use sustainable investing strategies to invest in the future of our planet, including some ETFs that the Dow Jones Sustainability Indexes have even recognized.
Not only are these sustainable ETFs great ways to make money while contributing to a healthier world, but they can also be great investments in their own right.
Can you make a killing with just green stocks?
It is not uncommon for someone interested in the environment and sustainability to want to invest in environmentally responsible companies. But is it possible to make money investing in just those types of companies without getting mixed up in other investments? The answer is yes.
It is not uncommon for someone interested in the environment and sustainability to want to invest in environmentally responsible companies. But is it possible to make money investing in just those types of companies without getting mixed up in other investments? The answer is yes.
Differentiating Between Green Investing and Sustainability Investing
The first thing to know about green investing and sustainability investing is that the two terms are not interchangeable. Green investing refers to companies that have made strides in reducing their environmental footprint and carbon emissions. However, they may still produce some greenhouse gas emissions or use some polluting substances. These investments are more focused on environmental issues than social and economic equity.
Sustainability investments go even further by considering the broader picture of environmental, social, and economic considerations when making decisions. Most of these funds exclude fossil fuel companies from their portfolios, which means your money won’t be invested in organizations whose actions contribute to climate change.
What are Sustainable ETFs?
An ETF is an investment vehicle that tracks an index. They are typically passively managed, which means they invest in stocks or other securities based on how their target index is weighted rather than trying to beat the market by picking winning stocks. These vehicles can be very cost-effective because they do not require significant research and management fees and provide diversification.
According to Bloomberg, investing in ESG (Environmental Social Governance) investments have become increasingly popular among investors over the last few years. And now, some ETFs on the market offer thematic exposure to ESG opportunities in addition to more traditional asset classes such as large-cap U.S. stocks and international equity markets.
Characteristics of Sustainable ETFs
Sustainable ETFs are investment vehicles that allow individual investors to invest in a portfolio of stocks and bonds while simultaneously seeking social good. Many indexes offer investors the opportunity to apply environmental, social, and corporate governance (ESG) lenses to their investments.
The ESG indexes can be categorized into broad themes such as climate change, human rights, gender diversity, etc. Within each theme, there is a spectrum of companies, from socially responsible firms with strong track records to those with questionable records or poor management practices.
This means that for every index one chooses, some companies will not fit with the guidelines or expectations of an investor’s philosophy. For example, index funds include oil and gas firms that do not adhere to sustainability standards but are necessary for proper diversification.
How is Sustainability Investing Priced?
The prices of the underlying stocks in an index fund are based on supply and demand. The more investors are interested in purchasing a certain stock, the higher the price. When more investors want to sell a stock, its price falls. Market trends also influence price, which can be both short-term and long-term.
Environmental, Social, Governance, and now Financial Returns!
As an investor, you have choices. There are countless ways to invest your money, from stock markets and real estate to cryptocurrencies. However, for those that want an investment that is more socially responsible and environmentally friendly, ETFs now focus on sustainability. What exactly are these types of funds? They are investments in companies that promote environmental stewardship, social justice, and other values such as fair trade or workplace safety.
Conclusion
It is possible to turn a profit by investing in just sustainable ETFs. There are many ways you can invest in the world without contributing to climate change. Investing in clean energy, green buildings, and environmentally friendly companies are just some examples of how you can make profits without hurting the environment.