Two investing trends are taking the stock market by storm—ESG and sustainability investing.
Whether you’re a novice stock trader or a newcomer to the green economy, you probably have questions. Is ESG sustainability? Are they the same?
ESG is based on a set of clear standards created by law, whereas, sustainability refers to more general standards that when applied to corporate environments, result in environmentally friendly business practices.
In this article, we’ll break down ESG vs sustainability investing to give you a clearer picture of both investment strategies, explore how you can invest in your values, and break down the power you have as a shareholder.
Environmental, social, and governance (ESG) investing prioritizes a company’s impact and its predicted profitability equally.
ESG investors evaluate a company’s positive (or negative) impact using three parameters:
- Environmental – What is a company doing—and planning to do—that has a positive impact on the environment?
- Social – How is a brand embodying and promoting equity, justice, diversity, and human rights?
- Governance – In what ways is the company structure serving as a good example for ethical, green, or inclusive business practices?
If a company embodies these ESG standards—and has plans to continue making a positive impact—the investor will likely shortlist the brand as a possible ESG investment.
But, an ESG investment isn’t a charitable donation—ESG investors care about predicted profits, too. To predict whether or not a stock will be profitable, ESG investors consider:
- The historical price, return, and performance of the stock
- How their ESG-related values will impact the company’s margin or operations
- If the stock’s fluctuation or stability impacts its overall financial health
ESG investors are just like traditional investors, but they assess return on investment (ROI) and positive impacts with equal attention.
Sustainable investing, like ESG investing, is an impact investing strategy that prioritizes companies that enact policies to benefit the environment.
There are two major types of sustainable companies to invest in:
- Brands that sell products or services that directly combat climate change—like sustainable financial services providers or alternative fuel manufacturers.
- Companies that sell any kind of product or service, but still make efforts to protect the environment—like clothing companies or food brands.
Since both of these types of companies can encompass a variety of industries, a sustainable portfolio can also be a diversified one. With a combination of sustainable product and services providers and other companies that tout impressive sustainability goals, investors can create as nuanced a portfolio as traditional traders.
And, just like ESG investors, sustainability investors highly value both ROI and positive environmental impacts of the brands they financially support.
Investing in Your Values
With the help of the internet, it’s easier than ever to invest in companies that align with your values. Finding a sustainable investment fund or investigating potential options are both simple if you know where to look.
While researching your options for ESG practice or sustainable investment strategies, consider using the following resources:
- Stock monitoring sites – Third-party sites like MarketWatch aggregate stock performance data in real-time and offer historical performance information. It’s important to seek this data from a non-brokerage source to avoid biased information.
- News articles – While financial publications like Forbes will share news about companies’ fiscal health, other reputable publications will divulge information pertinent to sustainability and ESG practice as well. News articles can help you determine whether or not a brand on your shortlist is actually living up to its promises for positive impact.
- Brand websites – Before investing in a company, explore its website. Review their company leadership, sift through their sustainability policies and plans, and evaluate their commitments to social justice and equity.
Using Your Shareholder Power
Every investor—no matter their priorities—should remember that a stakeholder can hold a great deal of power and influence. Boards of Directors and chief executives make decisions for publicly-traded companies that ensure optimal profits for their shareholders, but they also have the final say on policy changes.
Perhaps you invest in a company that makes regular donations to climate change organizations but doesn’t appear to have an equity and diversity policy on their website or offer their employees access to a labor union.
As a shareholder, you can influence this business because you have leverage—the money you’ve invested in their success and their values.
There’s also power in numbers. When you invest in a company, you’re one of many people who care about the business’s financial success, and investors can band together to influence company-wide decisions.
For companies that are still on their way to optimizing their impact, shareholders can accelerate that trajectory.
Enter the Green Economy with Aspiration
ESG and sustainability investing are excellent options for people who want to participate in the stock market without sacrificing their values. When you consider a company’s environmental sustainability before investing, you bolster the green economy and the climate action movement.
If you’re a sustainability or ESG investor, you deserve a financial services provider that aligns with your principles. At Aspiration, we’re changing the financial market one tree at a time.
The Aspiration Redwood Fund is a revolutionary and responsible investment product that supports brands making a positive impact while turning a profit. It’s a 100% fossil fuel-free ESG fund and aims to beat the market’s average ROI.
Forbes. Environmental, Social, and Governance: What Is ESG Investing?. https://www.forbes.com/advisor/investing/esg-investing/
Harvard Business School. What is Sustainable Investing?. https://online.hbs.edu/blog/post/sustainable-investing