Sustainable funds have a two pronged approach to investing: make shareholders (aka YOU) money, and try to be less terrible for the world.
If you’re someone who care about clean water, fair pay, animal welfare, or worker’s rights, you’re probably interested in making your financial plan sustainable as well. You can use an ethical bank, shop local, and yes, invest in sustainable funds! But like…what’s the deal with them? How do they work? Are the secretly BS?
Sustainable investing is an approach to wealth building that aims to exclude companies that are damaging our world. We know, for example, that fossil fuels are causing climate change. So one type of sustainable fund would be one that excludes any fossil fuel companies like Chevron, Shell, or Texaco.
Let me explain how sustainable funds work, perform, and where to find them!
What are sustainable funds?
Sustainable funds are an area of mutual funds that have integrated social principles into their mission and investment decision making. Essentially, these are companies that took a look around and said “hey…let’s be better??”
Often these funds use ESG investing principles in the quest to be better investing options. ESG is shorthand for Environmental, Social and Governance. They’re a set of criteria that certain companies and funds incorporate into their investment practices.
What that means is that the companies included in an ESG or sustainable fund have initiatives like fair pay practices, carbon emission reductions, or gender equity practices.
So, if you see something labeled a “sustainable fund” on a brokerage website, it’s the first sign that this company has taken *some* sort of action towards passing the vibe check.
Of course, financial greenwashing is very much so a thing, and we need to make sure that we don’t get tricked. Many funds labeled as sustainable might not have Exxon Mobil in them, but DO have Amazon in them, for example.
So how can you find out more about exactly what sustainable goals the fund has, so you can know if you want to invest in it? Let’s break down a sustainable fund and examine it.
Give me an example of a sustainable investment
Let’s take a look at a Vanguard ESG fund. We’ll break it down so that you’ll know how to evaluate sustainable funds in the future for your portfolio.
On Vanguard’s website they have a page dedicated to the ESG funds they’ve pre-selected for their investors. Let’s zoom in on VSGX, their international stock ETF.
Clicking on the fund will bring you to a page where you can see the details of the fund. Here you can find the fund fees, the category of companies in the fund, and all the information AND the top 10 biggest holdings in the fund. AKA, the 10 biggest companies in the fund. We’ll use this to see how sustainable this fund really is.
As I’ve highlighted, you can see that this fund includes Nestle. Unfortunately, they consistently rank as one of the biggest plastic polluters in the world and steal water from towns across the US.
Not exactly a sustainable company. THIS is why we have to do our research! Examining the companies in the fund is step one towards determining if it’s actually a sustainable fund you want to invest in.
But let’s not let one company spoil everything for us. There’s more to sustainable investing that just reviewing the companies. If you keep scrolling down this page, you’ll get to the “Fund Management” area, which tells you the goals of the fund and includes their sustainability guidelines.
For VSGX I’ve highlighted the part where you can see what kind of companies are NOT included in this fund. This fund has eliminated any companies that make money in:
Adult entertainment, alcohol, tobacco, cannabis, gambling, chemical and biological weapons, cluster munitions, anti-personnel landmines, nuclear weapons, conventional military weapons, civilian firearms, nuclear power, and coal, oil, or gas.
While it does include Nestle, this fund doesn’t include some of the biggest and baddest companies around, like Exxon, BP Oil, or any gun companies.
Excluding those types of companies might matter more to you than excluding plastic, meaning you are a-ok with this fund. And that’s why we do our research! It’s important that we have as much information as possible about HOW a sustainable fund is organized and operates before we start investing any of our money.
We have a much more in depth strategy about finding, researching, and choosing sustainable funds in our course “Ethical Investing 101: How to Make Money and Be a Good Person.” The course also includes ethical real estate strategies!
How to find sustainable funds for your portfolio
On the homepage of your brokerage, look for the search bar and then type in “ESG funds”. This will bring you to a page with the funds that are already labeled as sustainable by the brokerage itself.
However, as we’ve shown above, just relying on the brokerage to offer you sustainable fund suggestions for your portfolio is a mixed bag. It’s always good to add in a few other sources of information to get a complete picture!
Here are some resources you can use:
Bravelygo.co- click around this very website for more information on sustainable and ethical investing! We’ve got a free guide right here that will help you shop, spend, and bank more ethically!
Morningstar.com- This is a company that reports investing news and also puts out reports on sustainable investing. They can be very helpful for researching individual companies or index funds.
We do also offer a course all about sustainable and ethical investing as well!
How are you approaching sustainable investing? Do you own any sustainable funds, or will you be switching over now?
Dig this? The party doesn’t have to stop! Become a Patron to keep us independent, or follow us on Facebook, Instagram, and Twitter for money tips, jokes, and inspiration, and join our email newsletter here.
2 thoughts on “Sustainable Funds: How to Invest Without Killing the Planet”
Sustainable funds have a place in a portfolio but they should be used on the edges. There are a few that could serve as core, though.
Depends on your investing goals right? If you want to divest completely from harmful industries, sustainable funds are going to be your whole portfolio.