Why 2022 Is the Time to Align Your Investments With Your Social and Environmental Priorities
The New Year is a time when many individuals review their financial goals and investment strategies. The COVID-19 pandemic, the Black Lives Matter movement and the climate crisis, among other pressing concerns, have driven attention to investing as one way to address key environmental, social and governance issues (ESG) while also generating long-term competitive financial returns.
According to the US SIF’s Foundation’s 2020 Report on U.S. Sustainable and Impact Investing Trends, a third of professionally managed assets were invested using ESG criteria, accounting for a total of $17.1 trillion. A 2021 Morgan Stanley study found that 79 percent of all individual investors and 99 percent of millennials are interested in sustainable investing, and a 2019 survey by Natixis underlined the desire of individual investors to customize their portfolios to match their personal values.
This year is an opportune time to create a more sustainable investment portfolio whether that means adding a sustainable mutual fund or investing in a community development bank or credit union.
Individuals engage in sustainable investment for varied reasons. Some seek investment options that overlap with their personal values, such as avoiding weapons, gambling or animal welfare in their portfolio. Others want investments that, like their charitable giving, advance issues such as racial justice, women’s advancement or addressing climate change. And others are simply seeking strong returns—a growing body of academic research points to a strong link between positive ESG outcomes and competitive financial performance.
Below are some options for individual investors interested in sustainable investing.
Saving for Retirement? Invested in Stocks? Do It in Sustainable Investments
For most individual investors, mutual funds and exchange traded funds (ETFs) will be the preferred choice, as they are a familiar investment product—think of your 401k, for example—and there are many choices.
If you are invested in a 401k, 403b or other type of defined contribution retirement plan, take a moment to check if you have sustainable investment options, and if not, approach your employer about adding such funds. Shareholder engagement is another area where sustainable investors are active. Last year saw record-high votes at companies on climate change, diversity and political spending issues.
Bank Differently to Help Disadvantaged Communities
Community development financial institutions (CDFIs) direct capital to communities and individuals underserved by conventional financial services in urban and rural areas as well as in Native American communities. CDFIs finance a range of community businesses—including microenterprises, nonprofit organizations, commercial real estate and affordable housing. Opportunity Finance Network (OFN) lists numerous CDFI success stories.
To get started, consider opening an account with a CDFI credit union or mission-oriented bank. Another option is impact notes, which are a fixed income product that often have low minimum investments. They are offered by Calvert Impact Capital, Capital Impact Partners and the Local Initiatives Support Corporation (LISC), among others.
Consider Using an Advisor With Sustainable Investing Expertise
Financial advisors can help you determine if your investments are appropriate for your age, investment objectives, risk tolerance and return expectations. Some advisors have expertise in sustainable investment, and some robo-advisors also offer sustainable investment options. The automation and algorithms of these online wealth management services can enable you to develop a portfolio of funds that reflect your ESG preferences, risk tolerance and investment goals, often with minimal fees.
Make a New Resolution
There’s never been more interest in sustainable investments or a better time to start investing for social and environmental impact.
Lisa Woll is CEO of US SIF: The Forum for Sustainable and Responsible Investment.