ESG Investment Essentials

Want to invest in companies with a strong ESG strategy?  Here’s everything you need to know.

Due to a mounting wave of sustainability-minded investors, the ESG (Environmental, Social, and Governance) investing sector has achieved a 10x growth in the past two years. While institutional investors have led the charge, mission-driven, values-based millennials and Gen Z interested in ESG factors have also played a major role in this exponential expansion. 

Millennials and Gen Z are earning more, saving more, and investing earlier than previous generations. Not only do they comprise nearly 75% of the workforce, but they are also on the receiving end of tens of trillions of dollars of family inheritance.  

Socially Responsible Investing 

These economic powerhouses are investing their capital on new platforms with new criteria. According to a recent COGNITION Smart Data survey: 

  • 99% of millennials are interested in sustainable investing, citing climate change as the main decision driver.  
  • Nearly 50% of millennials say that their top consideration when making purchasing decisions is ESG and corporate sustainability.  
  • Nearly 60% of millennials report that they have sold stock and stopped purchasing products from companies that are not serving the best interests of society or our planet. 

By aligning their dollars with their values and using social media to spread the word, millennials are democratizing finance, accelerating the adoption of the issues that they care deeply about, and driving unprecedented levels of transparency and accountability, which will be with us for the long term.

Green Banks, Clean Stocks, and ESG Funds

When exploring sustainable finance and investing options, the first step is to analyze existing investments, the local community, banking relationships, savings accounts, and institutional relationships.  

Green banks are emerging across the country, like Climate First Bank and Aspiration, offering a spectrum of sustainable banking, lending, and finance options. Climate First Bank recently launched Regeneration Checking, a new consumer checking account developed in collaboration with Paul Hawken and his team at Project Regeneration.  

The account offers a $100 donation to Project Regeneration for every new qualifying account, and 100% of the interest earned on the account is donated to Project Regeneration.

To ensure that investments and savings dollars are being allocated in sustainable ways, it’s important to look up the holdings of mutual funds or exchange-rated funds (ETFs).  Websites like Fossil Free Funds help investors align their dollars with their values by analyzing the fossil fuel exposure and carbon footprint of thousands of U.S. mutual funds and ETFs.

Many traditional 401(k) and IRA plans place money in mutual funds that are heavily invested in fossil fuels. Fortunately, there are now plenty of alternatives for sustainability-minded investors, like iShares Global Clean Energy ETF (a BlackRock offering) that focus on investments in renewable energy and Clean Tech companies

ESG Ratings and Financial Factors

A wide spectrum of mutual funds with ESG criteria now incorporate environmental, social, and governance metrics into the asset management and investment selection process. And, investors don’t have to worry about giving up returns for mission alignment: These sustainability-focused funds often outperform their conventional counterparts.

Financial services companies like Newday Impact help investors develop triple-bottom-line portfolios that align E with financial returns.

Interactive Brokers, which operates the largest electronic trading platform in the United States, recently launched IMPACT, a mobile trading platform that allows conscious investors to develop investment plans based on their personal values by providing information about ESG practices, including accountability and transparency metrics.  

The simple IMPACT app enables investors to prioritize 13 distinct values, such as Clean Air, Pure Water, Ocean Life, Land Health, Ethical Leadership, Gender Equality, Racial Equality, and Sustainable Product Lifecycle.  Investors can exclude investments based on categories like animal testing, fossil fuels, greenhouse emissions, hazardous waste, and high water usage.

Some savvy sustainable investors rely on robo-advisors, or online financial advisors that utilize algorithms to develop portfolios based on risk tolerance, desired returns, and liquidity needs. Companies like Betterment, Personal Capital, Acorns, M1 Finance, Ellevest, and Marcus Invest offer robo-advisory services for investors that want to put money into green companies without high investment minimums, management fees, commissions, or transaction costs. 

Green Crypto Currency 

Millennials and Gen Zs are also displaying a penchant for crypto currency. While options like Bitcoin, Ethereum, and Dogecoin are popular, their mining process is highly energy-intensive. Greener crypto options include companies like Cardano and Nano.  All crypto investors should consider planting trees or purchasing carbon offsets to counterbalance the environmental impact of their investment activities.

Of course, investors can also keep their eyes open for private investment opportunities in emerging Carbon Tech companies, a mushrooming sector that has received nearly $90 billion in private investments over the past two years. 

High growth areas within the Carbon Tech sector include electrification technologies, blockchain, carbon removal, clean hydrogen, smart grid technologies, advanced controls, vehicle-to-grid integration, high-performance materials that sequester carbon, food waste technology, and plant-based proteins.

top considerations when selecting products


Publisher’s Note: This content is made possible by our Today’s Home Buyer Campaign Sponsors: Whirlpool and Vivint. These companies take sustainability seriously, in both their products and their operations. Learn more about building and buying homes that are more affordable and less resource-intensive.

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