Sustainable investing: What is it?

Many people want to do as much with their money as possible — whether they’re hoping to buy a family home, help their kids pay for college or create generational wealth that could benefit their loved ones for years to come.

For many of these people, sustainable investing is another appealing option. Why? Because if you add sustainable investments to your portfolio — whether you’re saving for retirement or saving for a down payment — you have the opportunity to benefit not only yourself and your family, but also the planet. The plants, animals, and people that contribute to our ecology and make our natural world habitable.

That’s why we asked Claire Smith, founder of the humane investment platform Beyond Investing, how to get started with sustainable investments. We also asked her how sustainable investing differs from ESG investing, what kind of financial returns you can expect from sustainable investments and why you should consider adding sustainable investments to your portfolio.

What is sustainable investing?

“Sustainable investing is investing for humanity,” says Smith, “for the aim of bringing about a cleaner, healthier world.”

By choosing sustainable funds, you’re putting your money where it really matters — towards companies that are committed to addressing large-scale problems like climate change. Your portfolio might include investments in clean energy, for example, or alternative meat products. Your money might also support corporations that are working towards ending hunger or providing affordable housing.

“You’re investing in companies that are providing solutions,” Smith explains — and those solutions are likely to offer dividends that go far beyond what you might see in your portfolio.

Sustainable agriculture, for example. Responsible land use. Biodiversity. Reforestation. Clean water for all.

How does sustainable investing differ from ESG investing?

Many people are already familiar with ESG investing or impact investing, and may have added ESG funds into their investment portfolios — but not everybody understands how ESG investing and sustainable investing differ.

“ESG investing is broader than sustainable investing,” Smith told us. ESG stands for environmental, social, and (corporate) governance, after all. And while social and corporate governance might be important factors in your investment decisions, only one of those factors has a direct effect on the planet.

“Governance is really about running businesses correctly, with the appropriate checks and balances,” says Smith. “That has more to do with ethics than sustainability.” The social justice goals associated with ESG investing may occasionally overlap with the goals of sustainable investing — preventing a small community of native farmers, for example, from being displaced by a large foreign corporation — but the only aspect of ESG investing that is guaranteed to be sustainable is the environmental aspect.

“The environmental aspect of ESG is closest related to sustainability,” Smith explains. “The activity of running the business without depleting natural resources in a way that they can’t be recovered.”

While some ethical investments can make sustainable investment strategies, the best way to invest sustainably is by looking for companies that are actively working towards fuel switching, biomass energy sources, renewable agriculture, permaculture and other long-term solutions to the biggest issues facing our planet.

What kind of financial returns do sustainable investments offer?

The stock market is unusually volatile right now — but that doesn’t mean that a sustainable investment won’t pay off over the long term. “Some investments come with higher risk,” Smith explains, “but they also potentially offer higher returns.”

Sustainable investments may become even more rewarding in the near future. As the sustainable sector grows, more people will be able to put their money towards the companies and causes they value — which could cause the value of those investments to go up.

“We offer a US Vegan Climate ETF,” Smith told us, “that rapidly outperformed the market during its first year of launch.” (Of course, as the case with any investing, past performance is no guarantee of future performance.)

How can you get started with sustainable investing?

If you want to get started with sustainable investing, you have three options. You can work with a brokerage or roboadvisor to identify sustainable investments. You can look for publicly-traded companies doing sustainable work. You can also search for organizations like Beyond Investing, Adasina or Impax Asset Management, all of which offer stocks, ETFs or index funds that you can add to your portfolio.

As you become familiar with the different types of sustainable investments out there, consider broadening your investing strategy to include other types of socially responsible investing, such as investments that benefit Indigenous communities. One of the best ways to support the planet is by supporting the people who are currently doing sustainable work — and by investing in companies and communities that are providing solutions to unsustainable problems, your money could go not only towards your own financial future, but also the future of generations to come.