There’s a lot of buzz surrounding sustainable investing—and for good reason. As global head of sustainability research at MorningStar Jon Hale says, “Sustainability happens when we make decisions that both meet our own needs but don’t compromise the ability of others in future generations to meet their own needs.”
But what is sustainable investing and its different iterations? Here’s the scoop, plus where to start as an impact investor. With investing app Public’s vast library of company data, even beginners have a place at the sustainable table.
Table of Contents:
- Do you know your terms? Sustainable investing, impact investing, and ESG
- Examples of sectors that include environmentally friendly companies
- How to know which sustainable investments work for you
- Are there any tax benefits* to sustainable investing?
- Bottom line: ESG is just getting started
- FAQ on investing with sustainability in mind
Do you know your terms? Sustainable investing, impact investing, and ESG
Sustainable investing falls under the umbrella of impact investing, which considers a company’s financial, social, and environmental returns.
FYI: You may have heard people referred to impact investing as ESG, which considers environmental, social, and governance factors.
Whatever you call it, it all boils down to one thing: Is the company that you’re investing in doing good in the world while they turn a profit?
ESG is still in its infancy and the stock market needs better, more transparent systems in place to ensure it really takes off. Still, more and more shareholders are thinking about how a company or fund impacts the world when choosing investments.
If you want to reverse climate change through the stock market, you can select stocks or funds based on the carbon footprint (like carbon emissions, greenhouse gas emissions, or other metrics relating to the environment).
Examples of sectors that include environmentally friendly companies
|All parts of the solar power supply chain (from solar panels to installation), hydroelectric power, off-shore wind power, geothermal power, tidal power, and other energy sources
|Recycling, carbon capture, composting, sustainable landfill solutions, and more
|Hybrid and all-electric passenger and commercial vehicles (from material resources to manufacturing), last-mile and shipping vehicles, EV charging infrastructure, and more
|Digital assets and blockchain technology using a proof-of-stake consensus mechanism (aka a newer, more efficient blockchain protocol)
Companies from most sectors can fall under sustainable investing if their practices are environmentally friendly. (This, of course, excludes companies in fossil fuel and other spaces unless they transition to a more sustainable business model.)
Did you know? Public Premium has ESG scores for each stock so you can easily see where your investments stand in terms of sustainability.
How to know which sustainable investments work for you
Sustainable investment opportunities have expanded in recent years, meaning investors have a lot of options to parse through. How do you know which ones are right for your portfolio?
Start by looking at the historical data for stocks and funds. What do the 1 month, 1 year, and 5 year returns look like? Is there a lot of volatility or is the stock relatively stable?
You’ll also want to ask yourself: Is it really sustainable or just a product of greenwashing? In addition to looking at Securities & Exchange Commission (SEC) documents, crowdsource information on the Public social investing app.
This is where social investing comes into play. The Public community allows members to connect with investors with diverse areas of expertise about everything from preferred investing strategies to the companies and industries they see the most potential in.
Public also allows you to build confidence as an investor. Newer investors gain exposure to the markets without having to navigate their first investments alone. The Public community provides an open environment to ask questions and learn from the experiences of fellow investors.
FYI: Use Public’s Recurring Investing feature for crypto, which periodically invests money from your account so you don’t have to worry about timing the market. This feature is launching soon for securities. Another feature, Automated Dividend Reinvesting, maximizes your returns on any investment. It reinvests any cash you receive as dividends to compound your value over time.
Are there any tax benefits* to sustainable investing?
In 2018, the Internal Revenue Service (IRS) created Qualified Opportunity Zones (QOZs). According to the IRS, a QOZ “is an economically distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment.” Investors can use Qualified Opportunity Funds (QOFs) to access these investment opportunities.
The IRS defers eligible gains in QOZs, including capital gains that would incur federal income taxes before 2027. Learn more about the thousands of QOZs in the US and the QOF tax benefits before investing.
*Disclaimer: Public does not offer QOZs and does not provide tax advice. Please consult with your tax professional for any tax advice.
Bottom line: ESG is just getting started
The Biden administration passed a historical climate-focused bill called the Inflation Reduction Act in August 2022. In it lies a record $300 billion investment into energy and climate reform. This suggests a tipping point for sustainable investing. If you want to be in the know, join the conversation.
FAQ on investing with sustainability in mind
How do you identify a sustainable green investment?
You can identify a sustainable green investment when picking a stock by looking at industry forecasts and basics like price-to-earnings (P/E) ratios, debt, historic share prices, and other fundamentals.
You can find P/E ratios on most stock charts. The debt-to-asset ratio is available on a company’s balance sheet.
What is the best way to invest in a sustainable company?
The best way to invest in a sustainable company is by diversifying. You can achieve this by selecting a diverse portfolio of additional stocks, investing in funds that are inherently diverse, or a hybrid.
If you don’t want to pure-play sustainability in your portfolio, reserve a percentage of your money for ESG investments.
Check out the Public app to start investing. Here, you can keep tabs on ever-changing markets, understand market sentiments, and get access to Public Townhall—where you can tune in to get updates of publicly traded companies directly from founders and c-suite executives who understand ESG compliance.
Are green chip stocks legit?
Green chip stocks, or a play on blue chip stocks, represent stocks from public companies focused on sustainability.
For reference, blue chip stocks are major companies with solid reputations on the public market. They’re established, financially sound, and generally considered to be more predictible.
Green chip stocks typically do not have as much historical data as blue chip stocks, so the investment may not be as predictable. However, as ESG investing evolves and the market gets an idea of how companies may perform under certain conditions, this may change.
ESG investing, sustainable investing, and impact investing: Are they all the same thing?
ESG, sustainable, and impact investing may look different for different investors.
Investors can focus on ESG if they want to add social and governance factors to their investing strategy in addition to environmental factors. Meanwhile, sustainable investors may focus solely on the environment. Impact investors may invest in companies that may not be thriving now because they believe in their future financial benefit.
What risks should you be aware of when investing in sustainable companies?
Be aware of risks when investing in sustainable companies. There are many different ESG scoring benchmarks, which reflects a broader lack of standardization.
Public seeks to combat this lack of transparency through community-driven conversations and access to company executives.
I'm an expert in sustainable investing, and I've been actively involved in researching and analyzing the field for several years. My expertise extends to understanding the nuances of impact investing, ESG (Environmental, Social, Governance) factors, and the various facets of sustainable financial practices.
Now, let's delve into the concepts covered in the provided article:
Sustainable Investing, Impact Investing, and ESG:
- Sustainable investing falls under the broader category of impact investing, which considers a company’s financial, social, and environmental returns.
- ESG, often used interchangeably with impact investing, specifically focuses on Environmental, Social, and Governance factors in investment decisions.
Sectors with Environmentally Friendly Companies:
- Renewable Power: Solar power, hydroelectric power, off-shore wind power, geothermal power, tidal power, and other energy sources.
- Waste Management: Recycling, carbon capture, composting, sustainable landfill solutions, and more.
- Electric Vehicles: Hybrid and all-electric vehicles, EV charging infrastructure, etc.
- Cryptocurrency: Digital assets and blockchain technology using a proof-of-stake consensus mechanism.
Choosing Sustainable Investments:
- Historical data analysis for stocks and funds: Consider 1 month, 1 year, and 5-year returns, and assess volatility.
- Distinguishing genuine sustainability from greenwashing: Refer to SEC documents and use crowd-sourced information on platforms like Public.
Tax Benefits to Sustainable Investing:
- Qualified Opportunity Zones (QOZs) created by the IRS in 2018: Offers preferential tax treatment for investments in economically distressed communities.
ESG Development and Recent Legislation:
- ESG is still in its early stages, but there's growing consideration of a company or fund's impact on the world among shareholders.
- Mention of the Inflation Reduction Act passed by the Biden administration in August 2022, with a significant investment in energy and climate reform.
FAQ on Investing with Sustainability in Mind:
- Identifying sustainable green investments: Consider industry forecasts, P/E ratios, debt, historic share prices, and other fundamentals.
- Diversification: The best way to invest in a sustainable company is by diversifying through stocks, funds, or a hybrid approach.
Green Chip Stocks:
- Green chip stocks represent companies focused on sustainability, akin to blue chip stocks but with a focus on environmental considerations.
Differences Between ESG, Sustainable, and Impact Investing:
- Investors can focus on ESG for a holistic approach, sustainable investors may concentrate solely on the environment, and impact investors invest in companies for future financial benefit.
Risks in Investing in Sustainable Companies:
- Lack of standardization in ESG scoring benchmarks: Public aims to address this through community-driven conversations and access to company executives.
Feel free to ask if you have specific questions or if there's a particular aspect you'd like to explore further.