What you need to know about sustainable investing

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Financial focus submitted by Arnetta Tolley, financial advisor to Edward Jones
What you need to know about sustainable investing

You may have heard of ‘sustainable investing’. But if you are not familiar with it, you may have some questions: What does it mean? Is it good for me? Can I follow a sustainable investment strategy and still achieve the portfolio performance I need to achieve my goals?

Sustainable investing can be defined in different ways, using different terminologies. One way to look at a sustainable approach is to think of it as investing in a socially conscious way, which can involve two broad categories: environmental, social and governance (ESG) investing and values-based investing.

As the name suggests, ESG investing involves a wide range of environmental, social and governance risks and opportunities, along with traditional financial measures, when making investment decisions. This approach may have a neutral effect on performance as the focus remains on risk management, traditional fundamental analysis and diversification. Here’s a quick look at the ESG elements:

• Environment – ​​Businesses can work to reduce carbon emissions, invest in renewable energy, reduce pollution and conserve water resources.

• Social – A company can promote gender equality and pay equality within its workforce, and maintain positive labor relations and safe working conditions for employees.

• Governance – Companies that are distinguished by good governance can establish strong ethical policies, provide transparent financial reporting, and create policies to ensure it has an independent, objective board of directors.

You can pursue an ESG investment approach through individual stocks, mutual funds, or exchange-traded funds (ETFs), which hold a variety of investments similar to mutual funds, but are generally passively managed – that is, they do little or no no trade. As an ESG investor, you don’t necessarily have to sacrifice performance, as ESG investing generally outperforms the broader investment universe. Some investments can even benefit from the ESG approach. For example, a company that invests in renewable energy can benefit from the shift away from fossil fuels.

Now let’s move on to value-based investing. Taking a values-based approach allows you to focus on specific themes where you can choose to include or exclude certain types of investments that align with your personal values.
So you can refrain from investing in market segments, such as tobacco or firearms, or in companies that engage in certain business practices, such as animal testing. On the other hand, you can actively look for investments that align with your values. For example, if you’re interested in climate change, invest in a mutual fund or ETF with companies in the solar or clean energy sector.

A possible limitation of value-based investing is that it can reduce diversification of your portfolio and lead to significantly lower returns due to narrowly focused investments, prioritization of non-financial goals and too many exclusions.

Ultimately, if you choose to invest sustainably – as you do in any investment scenario – you want to choose those investments that are appropriate for your goals, risk tolerance and time horizon.
If sustainable investing interests you, think about it – you may find it rewarding to match your money with your beliefs.

[Arnetta Tolley, Financial Advisor Edward Jones Investments 626-744-2740 or [email protected] This article was written by Edward Jones for use by your local Edward Jones Financial Advisor. Edward Jones, Member SIPC]

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