Investing is an essential financial practice for most individuals looking to secure long-term wealth or retirement funds. Whether you are brand new to investing or have been investing for decades, you should consider how your investments are impacting the environment.
Why Sustainable Investing Is The Future of Banking
Investing is an essential financial practice for most individuals looking to secure long-term wealth or retirement funds. Whether you are brand new to investing or have been investing for decades, you should consider how your investments are impacting the environment.
What Is Investing?
Investing is the act of sacrificing a monetary amount today for a return on that investment in the future. When you invest, you purchase something called an asset. An asset can look like real estate, stocks, index funds, bonds, cryptocurrency, or exchange-traded funds (ETFs), for example.
The goal of holding assets, or investing, is to gain a profit or income from your assets greater than what you invested to purchase them. Accounts like an Individual Retirement Account (IRA), 401k, or a brokerage account, are all examples of methods used to invest. Investing can be profitable both on a short-term and long-term scale; however, short-term investments usually carry higher risk.
How Can Investing Harm The Environment?
Everything you choose to spend money on, including what you invest in and how, has an environmental impact. Even the bank you choose to hold your accounts, investments, or CD's impacts the environment.
According to the BBC, the 35 largest banks in the world were reported to have provided 2.7 trillion dollars to fossil fuel companies in the years since the Paris Climate Agreement. This agreement gathered 194 parties from across the globe to sign a legally binding treaty to target global warming. Climate change and increases in global temperatures are aggravated by fossil fuel emissions, making bank investments in fossil fuel companies counterproductive to carbon reduction goals.
Common Investments: Stocks And The Planet
Stocks are arguably one of the most popular investment assets the average person holds. A stock is a small share of a company. The purpose of holding stocks, or shares, is to see them grow in value over time as a company expands and becomes more successful. As they do, your stock grows in value, making them more profitable if and when you choose to sell them. Stocks also pay out dividends, which are regular profit payments a company can choose to give to stockholders.
Companies, especially newly created ones (or start-ups), use your investment from stocks as capital to fund the company and its projects. This can get sticky if you invest in a company with environmental policies, operations, or beliefs that are counterproductive for sustainability goals. While you might be making a profit by investing in such companies, you also may be doing the planet a disservice.
Sustainable Investing For The Future of Banking
The sustainable finance realm has increased not only in investment opportunities but also in popularity in recent years. Sustainable investing uses the same common-practice investment strategies, but achieves financial profits while promoting positive, long-term social and environmental investments. Sustainable investing firms have begun to boom for researching the companies and projects best for environmental and sustainability goals for their members.
According to Harvard Business School, an investment's sustainability impact is graded using an ESG scale. This scale can be used to analyze a company or fund based on three factors: environmental, social, and governance.
A company's environmental impact is graded based on its carbon footprint, water use, waste, conservation, and technology. Social impacts are based on how a company or fund advocates for social change, takes a stance on human rights, racial diversity in hiring programs, employee health and safety, and community engagement. Governance scores take into account how a company or fund is managed or governed to drive positive influence. Shareholder rights, disclosure and transparency, and anti-corruption strategies are considered.
The better a company or fund's ESG score, the more sustainable an investment becomes with that company or fund.
ESG Fund Growth
While returns on investments (or profits) are not guaranteed, ESG funds are proving to be highly competitive against standard stocks and funds. In 2020, 14 out of 17 analyzed ESG funds performed better than the famous S&P 500. In that same year, more than 20 new ESG funds were added to the market.
To get started with ESG investments, consider discussing your financial goals with an investment advisor or doing some research on which ESG funds align with your financial goals and environmental outlook.
Each year, investing sites post "annual best ESG funds" reports for the public. In 2022, Investors.com posted their Top 100 Best ESG Companies of the year, with many displaying impressive ESG scores and returns on investments.
To begin your sustainable investing journey, you can find the full report here.
Key Takeaways:
- Investing is the act of sacrificing a monetary amount today for a return on that investment in the future. Investment examples include stocks, bonds, real estate, and cryptocurrency.
- Your investments may be fulfilling your future financial goals, but may be harmful to the environment if the companies you invest in do not align with national or global sustainability goals.
- Sustainable investing is the way of the future. To find your next sustainable investment, research the top ESG funds.
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Investing is an essential financial practice for most individuals looking to secure long-term wealth or retirement funds. Whether you are brand new to investing or have been investing for decades, you should consider how your investments are impacting the environment.
What is Investing?
Investing is the act of sacrificing a monetary amount today for a return on that investment in the future. When you invest, you purchase something called an asset. An asset can look like real estate, stocks, index funds, bonds, cryptocurrency, or exchange-traded funds (ETFs), for example.
The goal of holding assets, or investing, is to gain a profit or income from your assets greater than what you invested to purchase them. Accounts like an Individual Retirement Account (IRA), 401k, or a brokerage account, are all examples of methods used to invest. Investing can be profitable both on a short-term and long-term scale; however, short-term investments usually carry higher risk.
How Can Investing Harm The Environment?
Everything you choose to spend money on, including what you invest in and how, has an environmental impact. Even the bank you choose to hold your accounts, investments, or CD's impacts the environment.
According to the BBC, the 35 largest banks in the world were reported to have provided 2.7 trillion dollars to fossil fuel companies in the years since the Paris Climate Agreement. This agreement gathered 194 parties from across the globe to sign a legally binding treaty to target global warming. Climate change and increases in global temperatures are aggravated by fossil fuel emissions, making bank investments in fossil fuel companies counterproductive to carbon reduction goals.
Common Investments: Stocks And The Planet
Stocks are arguably one of the most popular investment assets the average person holds. A stock is a small share of a company. The purpose of holding stocks, or shares, is to see them grow in value over time as a company expands and becomes more successful. As they do, your stock grows in value, making them more profitable if and when you choose to sell them. Stocks also pay out dividends, which are regular profit payments a company can choose to give to stockholders.
Companies, especially newly created ones (or start-ups), use your investment from stocks as capital to fund the company and its projects. This can get sticky if you invest in a company with environmental policies, operations, or beliefs that are counterproductive for sustainability goals. While you might be making a profit by investing in such companies, you also may be doing the planet a disservice.
Sustainable Investing For The Future of Banking
The sustainable finance realm has increased not only in investment opportunities but also in popularity in recent years. Sustainable investing uses the same common-practice investment strategies, but achieves financial profits while promoting positive, long-term social and environmental investments. Sustainable investing firms have begun to boom for researching the companies and projects best for environmental and sustainability goals for their members.
According to Harvard Business School, an investment's sustainability impact is graded using an ESG scale. This scale can be used to analyze a company or fund based on three factors: environmental, social, and governance.
A company's environmental impact is graded based on its carbon footprint, water use, waste, conservation, and technology. Social impacts are based on how a company or fund advocates for social change, takes a stance on human rights, racial diversity in hiring programs, employee health and safety, and community engagement. Governance scores take into account how a company or fund is managed or governed to drive positive influence. Shareholder rights, disclosure and transparency, and anti-corruption strategies are considered.
The better a company or fund's ESG score, the more sustainable an investment becomes with that company or fund.
ESG Fund Growth
While returns on investments (or profits) are not guaranteed, ESG funds are proving to be highly competitive against standard stocks and funds. In 2020, 14 out of 17 analyzed ESG funds performed better than the famous S&P 500. In that same year, more than 20 new ESG funds were added to the market.
To get started with ESG investments, consider discussing your financial goals with an investment advisor or doing some research on which ESG funds align with your financial goals and environmental outlook.
Each year, investing sites post "annual best ESG funds" reports for the public. In 2022, Investors.com posted their Top 100 Best ESG Companies of the year, with many displaying impressive ESG scores and returns on investments.
To begin your sustainable investing journey, you can find the full report here.
Key Takeaways:
- Investing is the act of sacrificing a monetary amount today for a return on that investment in the future. Investment examples include stocks, bonds, real estate, and cryptocurrency.
- Your investments may be fulfilling your future financial goals, but may be harmful to the environment if the companies you invest in do not align with national or global sustainability goals.
- Sustainable investing is the way of the future. To find your next sustainable investment, research the top ESG funds.
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