Sustainable Investing: Building a Portfolio That Matches Your Values

In many areas of our daily lives, we already prioritize sustainability, whether it’s in our food choices, energy use, or transportation.

Sustainable investing is also gaining traction as more people aim to achieve financial success while supporting positive social and environmental change. But how does sustainable investing work, and how can you build a portfolio that aligns with your values while generating solid returns?

In this article, you’ll learn the essentials of sustainable investing and get practical tips for creating a portfolio that reflects your ethical beliefs.

What is Sustainable Investing and How Does it Work?

Sustainable investing means putting your money where it not only generates financial returns but also promotes environmental, social, and ethical goals. The core aim is to support companies and projects that positively impact the environment and society while allowing you to benefit from their financial success.

ESG (Environmental, Social, Governance) Criteria Explained

The concept of sustainable investing often revolves around ESG criteria, which stand for Environmental, Social, and Governance. These criteria serve as a framework for evaluating companies to determine how responsibly they operate in these areas:

Environmental: How does a company manage environmental resources? This includes aspects like climate protection, energy use, waste management, and the use of renewable energy.

Social: How does a company treat its employees, suppliers, and customers? Social criteria cover fair working conditions, equality, and the company’s impact on the community.

Governance: This evaluates corporate governance, including transparency, ethical behavior of management, diversity on the board, and handling of corruption.

These criteria provide a basis for identifying sustainable investments and assessing how well they align with your ethical values. Once these criteria are defined, they must also be measurable. This is our main focus at money:care. We select meaningful indicators, collect data, and make it easy to understand.

So, if you’re looking for sustainable ETFs or stocks, you can use our platform and explore the Impact Check feature.

Differences Between Sustainable and Traditional Investing

A common myth about sustainable investing is that it yields lower returns compared to traditional investments. However, many studies show that sustainable investments can provide competitive returns – often with less risk.

Returns and Risks of Sustainable Investments

Sustainable investments frequently offer similar or even better returns than traditional investments, as companies that adhere to ESG criteria are often more forward-thinking and better prepared for regulatory changes. For example, companies investing in renewable energy benefit from global trends towards more environmentally friendly technologies.

Of course, there are some risks associated with sustainable investing, especially when it comes to emerging technologies or less established markets. Companies that meet high ESG standards may need to invest more to maintain environmentally friendly or socially responsible practices, which can reduce profits in the short term. However, these actions may lead to a competitive advantage over the long term.

Tools and Platforms for Evaluating Sustainable Investments

The sustainable investment market has been growing for years. However, it remains opaque for individual investors trying to understand which companies are truly sustainable. Our platform helps you identify and evaluate sustainable investment products. Our Impact Check provides insights into the impact performance of companies and makes it easier to build a portfolio aligned with your values.

Understanding and Using ESG Ratings

ESG ratings are a valuable tool for assessing a company’s sustainability. Various providers, such as MSCI, Sustainalytics, or ISS ESG, analyze companies based on ESG criteria and assign ratings to help assess their sustainability.

The problem is that these ratings are often designed for institutional use, like banks and asset managers. They can be opaque and hard to understand for private investors. At money:care, our mission is to demystify ESG ratings and offer tools like the Impact Check, which are transparent and easy to understand.

Even though we strive for maximum transparency, you should also critically assess our platform. You can start by reading our methodology to understand how we evaluate companies.

How to Choose Sustainable Investment Products

To build a sustainable portfolio, you need to select the right investment products, such as ETFs or stocks, that meet both your financial goals and your ethical beliefs.

We’ve also written an article on defining your financial goals. If you want to delve deeper into sustainable investing, we recommend our Impact Academy.

Finding Sustainable ETFs and Stocks

Sustainable ETFs and stocks are excellent ways to diversify your portfolio while investing in environmentally friendly and socially responsible companies. ETFs focused on ESG-compliant companies or sectors like renewable energy allow you to invest broadly in sustainable businesses without needing to analyze each company individually.

You can find examples of sustainable ETFs using our search feature, where you can compare Impact Scores or filter by specific criteria. In the detailed view, you can also see which companies are included in each ETF.

Sustainable individual stocks, such as Schneider Electric or Swedbank, can also make good additions to your portfolio if you want to invest directly in companies with high Impact Scores.

H2: Sustainable Investment Strategies

When it comes to sustainable investing, there are various strategies, each with different approaches and priorities. Two of the best-known strategies are Impact Investing and Socially Responsible Investing (SRI).

Impact Investing vs. Socially Responsible Investing (SRI)

Impact Investing: This strategy involves intentionally investing in companies, projects, or organizations that aim to create measurable positive social or environmental change. The main focus is on the positive impact achieved through investments. An example could be investing in renewable energy projects in developing countries. It’s challenging to achieve direct impact through public stock markets, but you can still invest in impact-aligned companies by focusing on positive screening.

Socially Responsible Investing (SRI): SRI focuses on meeting ethical and social standards by excluding companies or sectors that do not meet certain criteria. Common exclusion criteria include tobacco, fossil fuels, or weapons production. The goal is to avoid investments in companies that have negative effects on the environment and society.

Both approaches offer ways to integrate sustainable investing into your portfolio, depending on whether you want to focus on positive change or maintain certain ethical standards.

Risks of Sustainable Investing: Greenwashing and More

One known risk in sustainable investing is greenwashing – when companies make themselves appear more sustainable than they are to attract investors. It’s essential to recognize and avoid these practices.

Exposing greenwashing is also one of our goals. Our Impact Check helps you identify companies that align with your values.

Other risks include potential diversification limitations when investing in niche areas or specific sectors. It’s essential to ensure that your portfolio is well-diversified to avoid concentration risks.

Conclusion

Sustainable investing allows you to achieve financial goals while making a positive impact on the world. By incorporating ESG criteria into your investment decisions and focusing on sustainable ETFs or stocks, you can build a portfolio that aligns with your values.

Pay attention to transparent ESG ratings to avoid greenwashing, and choose a sustainable investment strategy that matches your ethical beliefs. This way, you can achieve long-term financial success and contribute to solving global challenges.