From renewable energy to the green economy, investing in sustainability could benefit society and your portfolio.
Jane Marie Petty, National Director of Consulting for Social Impact Investing at Wells Fargo Private Bank, has recently seen a heightened awareness among clients regarding the potential benefits of sustainable investing—investing in companies that are good for the environment and bringing about social change. It’s a mindset shift that has become more prevalent in recent years, and even more so in 2020.
“Many individuals, especially high net worth individuals, are part of this rise of consumer consciousness,” says Petty. “We’re moving from the ‘show me the money’ mindset of previous decades to a ‘show me the meaning’ mindset.”
If market uncertainty fueled by the coronavirus pandemic has you evaluating your portfolio, you may want to do so with an eye on sustainable investing, Petty says. “There’s been a huge misperception that if you want to invest in a way that’s aligned with what you believe, there’s a financial sacrifice that needs to be made,” she says. “That is not necessarily the case.”
Here, Petty shares four trends to watch for in sustainable investing.
Petty says that emerging technology and new policies limiting carbon emissions should encourage investors to consider the transition from fossil fuels to renewable energy, such as the use of solar panels and wind turbines. At the same time, opportunities could exist with companies focused on breakthrough technologies such as long-duration batteries and electric vehicles.
To see how cloud technology and data centers are becoming increasingly important, look no further than the emerging role of someone who oversees those areas. A 2019 survey of more than 60 Fortune 1000 companies revealed that 67.9% have appointed a chief data/information officer. What does that mean for investors? Consider companies focusing on data protection technology versus companies that rely heavily on tech, Petty says.
Cruelty-free investing might exclude investments in corporations that engage in the inhumane treatment of animals. Investors may choose to avoid investing in some, if not all, corporations in the agribusiness industry that are involved with deforestation and habitat destruction, for example. Or they may want to exclude investments in manufacturers of clothing containing animal products, or medical device companies required to use animals for experimentation and testing.
“The humane economy is all about the move from industrial to sustainable agriculture,” Petty says. That investment can affect the food industry, farming, the environment, and so much more. Investors may find opportunity here in companies that advocate animal rights and create products such as plant-based versus animal-based proteins.
Renewable supply chain
Opportunities also exist with companies making efforts to reduce the amount of waste that winds up in the landfill. This includes eliminating the production of single-use plastics and food waste. “We’re living in a world of depleting resources,” Petty says. “But we’re slowly moving from the industrial age thinking into the age of sustainability.”
What to consider next
There are many resources for investors who are interested in learning more about sustainable investing. Among Petty’s favorite books on the subject:
- The Age of Sustainable Development by Jeffrey D. Sachs; published in 2015
- The Rise of the Meaningful Economy by Mark Drewell and Björn Larsson; published in 2017
- Invest Like You Give a Damn: Make Money, Change the World, Sleep Well at Night by Marc de Sousa-Shields; published in 2017
As you meet with your investment professional to learn more, be sure to share what sustainable investing topics interest you—for example, maybe animal rights isn’t your passion, but organic farming is. That way, you can work together to design a portfolio that better aligns with your values.
All investing involves risk, including the possible loss of principal. Past performance is not indicative of future results, and there is no assurance that any investment strategy will be successful.
Social impact investing focuses on companies that demonstrate adherence to environmental, social and corporate governance principles, among other values. There is no assurance that social impact investing can be an effective strategy under all market conditions. Different investment styles tend to shift in and out of favor. In addition, a fund’s social policy could cause it to forgo opportunities to gain exposure to certain industries, companies, sectors or regions of the economy which could cause it to underperform similar portfolios that do not have a social policy. In addition, there is no guarantee that the company invested in by a fund will exhibit positive or favorable environmental, social, and governance (ESG) characteristics.