I’m a Financial Expert: What You Need To Know About Sustainable Investing and Its Benefits

When it comes to expressing your values, there are some common ways of putting your money where your heart is. You may set up recurring donations to an animal shelter, or participate in fundraisers for a human rights organization. But this may feel like it’s not enough in terms of a long-term contribution. Or you might be looking for a way to make some money back as you make a difference.

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That’s where sustainable investing comes in. If you’re wondering exactly what sustainable investing means, in a nutshell, it’s about investing in companies whose practices and mission align with your worldview. The Harvard Business School defines sustainable investing as “a range of practices in which investors aim to achieve financial returns while promoting long-term environmental or social value.”

GOBankingRates talked to experts to learn more about how sustainable investing can help do some good in the world while achieving greatness for your portfolio.

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Sustainable Investing Allows You To Advance Causes That Matter

If you’re an eco-conscious investor, there are many kinds of green that you care about. In fact, climate change is motivating an increasing number of investors as they make their decisions about which companies deserve their investments and their trust.

“Concerns about the dire consequences of a warming planet are driving many investors to rid their portfolios of companies that are contributing to climate change and, alternatively, are seeking to invest in companies that offer alternative opportunities to mitigate the effects of climate change,” said Frank Altman, founder and retired CEO, Community Reinvestment Fund, USA.

While investors who want to ensure that their portfolios minimize environmental harm make up a substantial number of people looking to make a change through their investing strategy, the same approach is applicable for several causes. For instance, if you want to advocate for animal welfare, you might invest in companies that don’t perform animal testing, or have a cruelty-free seal of approval.

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Sustainable Investing Is Also About Saying No to Certain Companies

Working with an advisor to find the companies that best align with your values can be fun, but building a portfolio oriented around good causes requires a lot of research. You’ll want to know which companies are on the other side of the spectrum of your beliefs. A good way to approach this is through the environmental, social, and governance (ESG) criteria that was popularized through the UN Global Compact’s Who Cares Wins report.

But if you don’t want to sift through a massive report, let Robert Bikel, DBA director of the Socially‚ Environmentally‚ and Ethically Responsible (SEER) Program at Pepperdine Graziadio Business School break it down further: “ESG investing typically promotes the idea of a ‘win-win,’ aligning financial returns with positive social and environmental outcomes for both investors and stakeholders.”

Bikel added that ESG investing operates across a wide spectrum of approaches, including negative screening that identifies companies that have a poor ESG performance or have attributes that don’t reflect your values or concerns. For instance, you might also want to screen out companies with bad gender representation, lack of diversity in leadership or initiatives, poor community engagement, or lack of emphasis on the environment.

It Can Influence Companies’ Behavior

Maintaining appeal to shareholders is essential to a company’s health and viability. Understanding the kinds of actions and initiatives that will motivate or discourage investors, including investors who factor in positive ESG into their decision-making, is key to success.

As Chris Berkel, investment adviser and president of AXIS Financial explained it: “ESG, as originally studied decades ago, was a way to identify corporate behavior by companies that are non-quantifiable yet should add value to shareholders over time.”

Bikel went on to use the example of an oil company that focuses on the environmental impact of oil spills by having safety protocols that go above and beyond government mandates. “The idea is, if money is spent on safety now, then it will be less costly and damaging to reputation and shareholder value if there was an accident.”

ESG can also be a powerful determinator in how boards are created, specifically the practice of holding regular elections where all members are up for reelection at the same time, which allows the composition to change based on prospective members’ qualifications.

“Boards that are shareholder unfriendly may have staggered terms so that once you’re in, your buddies on the board can continue to reelect each other, creating a ‘good ole boys club’ which could hurt shareholder value,” he added.

This article originally appeared on GOBankingRates.com : I’m a Financial Expert: What You Need To Know About Sustainable Investing and Its Benefits