“I’m interested in making money. Why would I want to own a sustainable fund?” one investor asked.
“Isn’t sustainable investing just a way of making a political statement?” another said.
These are some of the common questions we’ve heard about sustainable investing, and we’ve shared our answers below:
Question #1: Why would I invest in a sustainable investing fund?
A: The simple answer is that sustainable investing is an opportunity to make money: many studies have demonstrated a connection between environmental, social and governance, known as ESG, and corporate financial performance.
Sustainable investing also has the potential to help mitigate risk. A company with a poor environmental record, for instance, may be more likely to face fines and lawsuits that could really hurt its bottom line. A 2015 CFA Institute survey found that 63% of advisors who consider ESG issues do so “to help manage investment risks.” Morningstar reported that funds with better sustainability ratings tend to have low volatility (“Higher Sustainability Ratings Can Mean Lower Risk”, October 13 2016).
Sustainable investing can also help you to support the issues that matter to you and make a positive impact on the world.
It’s one of the fastest growing investment areas, and according to the U.S. Forum on Sustainable Investing (USSIF), it accounts for one in every five investment dollars under professional management in the U.S.
Question #2: What makes a fund sustainable?
A: Sustainable investing covers a wide range of important issues that can be grouped into three broad categories: environmental, social and governance (ESG).
Some funds self-identify as sustainable responsible impact or socially responsible investing (SRI) funds. These funds invest in companies that have strong E, S or G practices depending on the mandate of the fund. Many SRI funds also actively engage with companies and use their voice and votes as shareholders to change a company for the better.
Recently developed ESG fund ratings have identified many ‘undiscovered’ sustainable funds: these funds own companies with good environmental, social and governance (ESG) policies even though they aren’t required to invest in these companies.
Question #3: Isn’t sustainable investing just a way of making a political statement?
A. No. Many people see sustainable investing as a way to support the issues that matter to them, and these issues tend to cross the political spectrum. For instance, most of us can agree that it’s good for everyone to develop new treatments or cures for disease; reduce toxins in children’s products; have clean water and sanitation; and make sure companies keep our personal information secure.
Question #4: Won’t sustainable investing suffer from Trump’s policies?
A. Government policies are just one way to bring about change. These days, big changes are coming from corporations, largely driven by consumer demand and markets.
Many companies have found that environmental, social and governance issues are good for business. Major corporations like Apple, Walmart, Proctor & Gamble, Nestle and General Electric, stated that they will keep their commitments to address climate change, despite changing environmental regulations.
Investors also have a say in how a company operates. Shareholders use their power to hold executives accountable on executive pay; they also push companies to address the risks of climate change and advocate for safer products. This kind of shareholder engagement may be particularly important as the Trump administration rolls back regulations.
Sustainable investing lets you vote with your investments to support policies you agree with and minimize investment in areas you oppose.
Question #5: Can a fund actually make a difference in the world?
A. Yes. Fund companies have had many successes. In the 1980s, sustainable fund companies were part of the movement to divest from South Africa during apartheid. In the 1990s, they worked with global retailers like Nike and The Gap to improve working conditions in their overseas factories.