Buzzwords such as ethical investing and sustainability initiatives have been floating around for the past few years, but many people still struggle to understand the concept and why it is so important.
Sustainable investing is the future of stock and ETF trading, so we decided to clear up any misconceptions today.
In this article, we will define sustainability and thoroughly explain what a sustainable portfolio is, so you can invest wisely and morally. Continue reading the article below to learn more.
Defining Sustainability
Sustainability is the act of doing something that can be maintained at a consistent level. In the corporate world, it means the process of manufacturing your product or completing your service doesn’t do more harm than good. Sustainable companies have become a popular investment option because, by their very nature, they are a safer long term investment.
However, many companies mislead the public about their sustainability claims with green initiatives and positive PR campaigns, while their underlying practices still contribute a net negative to the environment and humankind. It’s important to understand what constitutes a sustainable company and what a sustainable portfolio is.
What a Sustainable Portfolio Is
You’ve probably heard terms like investment portfolio and diversification before when discussing the stock market. An investment portfolio is a group of investments bundled together, and diversification is the act of spreading your money into several investments to protect yourself from downturns in the market. A sustainable portfolio is essentially the same thing, but every company in your portfolio practices sustainability.
If the goal of an investment portfolio is to protect your money, so if one of your investments fails, the others can still support you. Then a sustainable portfolio takes this concept even further since every company included has built-in longevity. An unsustainable company, such as a coal mining company, has a short shelf life as the general public moves to greener methods of energy. This is the main reason sustainable investing has grown in popularity.
As we have discussed, many companies claim to be sustainable but technically don’t fit the bill. It is up to you, the investor, to do the research.
Determining What a Sustainable Company Is
Now that we know what a sustainable portfolio is, we need to determine what investments we want to add to it. In order to operate, every company has to consume resources, whether they are natural or more abstract, like a person’s time. For a company to be sustainable, they need to export more positive change than they consume. So even if an oil driller pays and treats their employees well and in the short term, rewards their investors. Their damage to the environment makes their total output a net negative to the world, making them an unsustainable company.
Sustainable Investing is the Smart and Right Thing To Do
There’s a common misconception that in order to make money in the stock market, you have to put your money into companies whose practices you despise. However, that couldn’t be further from the truth. Unsustainable companies are always in danger of being forced to change their practices or of losing their customer base. Just look at what is happening to the coal industry or how the number of new tobacco smokers is at an all time low. Sustainable investing is the key to success.
