ESG and Sustainable Investing: How to Build an Eco-Friendly Portfolio

As investors are becoming more conscious about where their investments are going, sustainable investments are rising to popularity. Currently, investors are finding that their beliefs and values do not align with many of the companies in the market. Sustainable investing —also known as Environmental, Social and Governance (ESG) investing or socially responsible investing— allows individuals to build a portfolio that directly reflects their ethical priorities. ESG goes beyond the company’s financial performance but also factors in that company’s environmental impact to help investors align their investments with their morals.   

Companies may claim to be environmentally responsible and ethical to gain traction and build a diverse audience of stakeholders. However, they may simultaneously contribute to certain unethical practices. It is important to always ensure that a company's ESG practices can be verified and remain transparent.

Historically ESG investments are seen as under performers compared to traditional investments in terms of performance.  However, over time this is changing with the introduction of Gen Z investors. It is evident now that sustainable investments have been providing stronger returns, especially now that people are choosing to invest more responsibly in more eco-friendly companies. 

One of the simplest ways to start your eco-friendly portfolio is to start with ESG funds which can be ESG based mutual funds or exchange traded funds (ETFs). These funds automatically select companies that meet specific environmental, social, and governance aspects.

Do your research, if you plan on selecting individual stocks it is easy to research the ESG rating of companies. Most financial platforms such as HSBC, Morgan Stanley, and Nasdaq provide these ratings.

Key ESG Metrics to Look for:

• Carbon Footprint, try to look for companies with net-zero carbon emission goals

• Diversity & Inclusion, a company's stance on inclusion policies

• Labor Practices, does the company ensure fair wages and safe working conditions?

• Energy Usage, does the company rely on renewable energy sources?

Sustainable investing is on the rise and may be the option for you. Due to the United States Securities and Exchange Commission requiring companies to release their ESG data and increasing personal responsibility among investors, sustainable investing is believed to grow with time. ESG investing supports positive change, fostering a more responsible economy.