A beginner’s guide to sustainable investing: 6 steps to get you started

By Steve Kerch

June 6, 2024

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4 min read

Sustainable investing is gaining popularity, especially among a younger generation of investors who want their money to be a catalyst for positive change as well as provide competitive returns.

For those looking to understand the basics of sustainable investing, the US/SIF (Sustainable Investment Forum) has posted a beginner’s overview of the concept. The organization also offers a more in-depth examination of the topic in an on online course for financial advisers and money managers covering the fundamentals of sustainable investing.

Sustainable investing refers to a range of strategies in which investors include environmental, social and corporate governance criteria in investment decisions and investor advocacy, according to US/SIF. Examples of ESG criteria can be found here.

If the idea of putting your investments to work in this way intrigues you, Bankrate.com offers six questions you need to ask yourself before you jump in:

1. When will you need the money?

One of the most important pieces of sustainable investing is the same as traditional investing: You need to know your timing. Do you need money in five years? Ten or more? Understanding your timeline is a critical piece of determining what should be in your portfolio.

2. How much risk are you willing to take?

How do you feel about knowing you might not get it back? Here’s a simple rule to follow: The more diversified your investments are, the less volatile your portfolio will be.

If these investments are meant to be retirement assets, be sure they match your risk tolerance as you age. If you’re younger, you might want to consider a riskier mix of assets. If you’re nearing retirement age, you’ll want to consider more conservative investments.

3. Which brokerages look like your best bet?

You’ll need a broker or an individual who executes trades and is paid a commission when you buy or sell securities. You can pick from well-established names like Charles Schwab or Fidelity. If you’re okay with less of a human touch, robo-advisors like Betterment, Earthfolio and Impact Labs use algorithms to automate your investments.

With so many options, make sure you spend time researching the brokerage that best caters to your timeline and needs. Be sure to pay attention to fees, too. There may be another brokerage that offers the fund you want at a lower price.

4. What’s your moral code?

Make a list of what’s important to you. For example, BlackRock offers products that explicitly exclude firearms manufacturers. Meanwhile, State Street and others offer funds focused on addressing climate concerns. Whatever you’re passionate about, look for mutual funds or other securities that are connected to those causes.

5. Do you want to avoid too much additional research?

In addition to what you want to invest in, you can also explore exclusionary funds, which are focused on leaving certain kinds of companies out of the mix. For example, consider Vanguard’s ESG U.S. stock fund. Your investment is indexed across approximately 1,400 stocks. Sifting through each of those companies would be far too much work, so Vanguard’s fund leaves out companies that:

Produce alcohol, tobacco, gambling and adult entertainment
Produce civilian, controversial and conventional weapons
Produce nuclear power
Do not meet certain diversity criteria
Have violations of labor rights, human rights, anti-corruption and environmental standards defined by U.N. Global Compact Principles
Own proved or probable reserves in fossil fuels such as coal, oil or gas

Rather than having to pick individual stocks and research individual companies, you can sleep easy knowing that your money isn’t going to benefit any business you don’t believe in.

6. Should you divest some of your assets?

Take a look at your current portfolio, and consider divesting from any assets that don’t fit your objectives. Divesting, the opposite of investing, is the process of selling an asset in order to meet your financial, social or political goals. Often, you can sell your assets and reinvest them into your new sustainable funds. That’s especially easy to do if your divested funds are in the same brokerage firm as your new sustainable-focused funds.

Steve Kerch

Steve is a member of Equities Staff editorial team. He brings 22 years of investment publishing experience to the table having worked at MarketWatch most of his career. He is an experienced editor, writer, columnist, TV host and radio commentator with an extensive background in digital and print journalism. Steve is a proven digital traffic generator and an innovator who has developed specialized digital and print content for local and national audiences.