An Investor’s Guide To Selecting An ETF That Is Sustainable
The global economy is shifting to investments to preserve natural resources and reduce negative environmental impact. If you want to make an ethical investment, settling on a sustainable ETF will give you peace of mind and financial returns.
However, with so many ETFs claiming commitment to similar goals, how do you know what to select for your portfolio?
Read on for the investor’s guide to selecting an ETF that is sustainable.
Table of Contents
The Public Benefit Mission
Benefit Corporation funds are a type of ETF focusing on public benefit and profits for the investors. The public benefit, in this case, includes maximizing the value it created for the employees, customers, and society. Benefit Corporation funds are ideal for an investor who wants their fund to have additional impact besides making money.
Check The Sustainability Of The ETF
Sustainability is a company’s ability to remain operational over the years without its actions hurting it. A company’s actions can hurt where the environment cannot support them due to the damage they caused through their operations over the years.
An ethical company aims to reduce its negative impacts on the people and environment. A sustainable ETF with a broader definition of sustainability will focus on ethical companies. On the other hand, sustainable ETFs focusing on the environment will choose a smaller subset of businesses to invest in, including those that are environmentally sustainable but unethical, making them unsustainable from a social perspective. Therefore, as an investor, you should beware of these definitions when selecting an ETF that is sustainable.
Determine If The Company Is Ethical
Sadly, most ESG funds focus on the financial risks and the profitability of the companies they invest in, making them unethical. Such companies can get away when they hurt someone without affecting their profits. Thus, when selecting an ETF that is sustainable, check for one that will penalize bad behavior even if there is a financial consequence.
Research On The Focus Of The ETF
Selecting an ETF that is sustainable should also be based on the cause you want to support. For instance, if you are into supporting women, invest in an ETF that offers exposure to companies with female CEOs. However, this approach is limited if your interests are beyond one issue, in which case, you should consider the generalist ethical fund. The generalist fund researches different issues and their ethical impact on humanity.
Other Factors To Consider When Selecting An ETF That Is Sustainable
Upon figuring out the kind of ETF you want to invest in, you should evaluate the prospectus to know the following:
- Risks involved
- Extra charges
- Your financial goals versus the ETF
- Stability of the ETF
The Bottom Line
Sustainable ETFs are a convenient way to invest in companies having strong ESG ratings. This way, investors can match their investments and values and achieve their financial goals while positively impacting their society and environment. While making this investment, an investor should check the sustainability, ethical focus, and public benefit of the investment. ETFs also have risks, and considering the pros and cons is advisable before investing.