What is Sustainable Investing?

Sustainable investing enables you to invest your money in a socially conscious way according to your personal preferences and values. Interest in sustainable investing has grown in recent years due in part to heightened investor demand, increased corporate awareness and greater investment product availability. As a result, many companies are elevating their business practices and policies to be more in line with environmental, social and governance (ESG) factors to meet this demand and help ensure market resilience in an ever-changing economic environment.

Whether you want to encourage better corporate behaviour, make a positive impact on the environment and society, or align your personal views with your portfolio, there are options that can help you achieve your goals.

Understanding ESG considerations

Sustainable investing incorporates environmental, social and governance or "ESG" considerations in the investment decision. Let's look at some examples of ESG factors and what companies can do to better align themselves with these considerations:

Environmental

Considerations include climate change, natural resource use and pollution. Companies can reduce carbon emissions, invest in renewable energy, decrease materials waste or conserve water resources to reduce environmental risks. They may also innovate environmental solutions that create business opportunities.

Social

Considerations include workforce well-being, product liability and social inequalities. Companies can advance gender pay equality, prioritize diversity and inclusion, foster positive labour relations, provide safe working conditions for employees and build strong cybersecurity systems.

Governance

Considerations include corporate governance and corporate behaviour. Companies can institute stronger ethics policies, provide transparency in their financial reporting and set accounting policies that reflect the state of the business.

What are my sustainable investment options?

Many professionally managed investments, such as mutual funds and exchange-traded funds (ETFs), incorporate ESG considerations into their process. They may do this by integrating it as one part of the overarching investment process, or they might have a primary and intentional focus on ESG.

Traditional funds may choose to integrate ESG considerations only to the extent it is financially material to the investment decision. These fund managers continue to prioritize financial return over ESG considerations. Importantly, these investments may not be marketed and viewed as sustainable investments.

The decision to incorporate your nonfinancial goals into your financial objectives is a personal choice. Make sure the goals and objectives of a sustainable investment align with your expectations. If you are interested in incorporating more sustainable investing strategies into your overall financial strategy, talk to your financial advisor to determine whether sustainable investing is right for you.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.

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