Sherpa Wealth Strategies Financial Planner in Bend, Oregon

What is Sustainable Investing?

Erin Weber

Sustainable Investing (SRI)

Sustainable investing sounds great, doesn’t it? But what actually is it? Investing in green energy? Organic-farming? Electric vehicles?

There are many terms that refer to sustainable and responsible investing (SRI) — values-based investing, green investing, ESG-investing, impact-investing. The origins of this type of investing date back to the days of the Quakers’ opposition to slavery and other faith-based investors who wanted to avoid “sin” stocks such as alcohol, tobacco or weapons.

Currently, sustainable, responsible and impact investing (SRI) is an investment discipline that considers environmental, social, and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact. It can be applied across all asset classes.

Investors commonly use sustainable investing to pursue two overarching goals:

1) To protect and enhance long-term financial value through addressing ESG risks or investing in solutions to environmental and social challenges; and

2) To protect, enhance, or otherwise positively impact the long-term health of the environment or society through expressing ESG values.

Environmental, Social, & Governance (ESG) Criteria

ESG criteria are considered in investment analysis and portfolio construction across a range of asset classes. ESG can be incorporated into a portfolio in many ways:  

• Positive/best-in-class: Investment in sectors, companies or projects selected for positive ESG performance relative to industry peers.

• Negative/exclusionary screening: The exclusion of certain sectors or companies based on specific ESG criteria – for example, fossil fuels.

• ESG integration: The systematic and explicit inclusion by investment managers of ESG factors into financial analysis.

• Impact investing: Targeted investments, often in private markets, aimed at solving social or environmental problems – for example, investing in affordable housing.

• Sustainability-themed investing: The selection of assets specifically related to sustainability in single or multi-themed funds.

Constructing an Sustainable Investment Portfolio

When constructing an ESG-friendly portfolio, it’s important and even beneficial that every fund manager uses slightly different criteria in choosing which companies to own. Few companies score perfectly on any benchmark. And a clean environmental scorecard is no substitute for a clean balance sheet or a positive track record of growth. ESG managers look for companies that perform well on social AND financial metrics.

Sustainable investing is increasingly mainstream and is growing in importance to individual investors and the financial advisors who guide them. “The total US-domiciled assets under management using sustainable investing strategies grew from $12.0 trillion at the start of 2018 to $17.1 trillion at the start of 2020, an increase of 42 percent. This represents 33 percent or 1 in 3 dollars of the total US assets under professional management,” according to the US-SIF 2020 Trends Report.

Erin Weber, our Chartered Socially Responsible Investment Counselor

The Forum for Sustainable and Responsible Investment in partnership with the College for Financial Planning offers a certification for financial advisors in SRI investing, the Chartered SRI Counselor or CSRIC. I recently received the CSRIC designation. I’m excited to help clients invest in sustainable and responsible companies as part of their overall financial plan. Send us an email if you want to know more about these investment options.


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