Sustainable ETFs are an excellent way for investors to create an ethical investment portfolio. By using these funds, you can place your money in a basket of companies that meet certain standards or principles with regard to their impact on the environment, society and their own workers.
If you’re looking to put your money where your values are by investing in companies that align with your ethical beliefs, sustainable ETFs give you the ability to do just that. But what exactly are sustainable ETFs and how can they benefit your portfolio?
Keep reading to find out everything you need to know about sustainable ETFs so you can make the right decision for your investing strategy.
What Is a Sustainable ETF?
A sustainable ETF is a type of exchange-traded fund (ETF) that invests in companies that have a positive impact on the environment, society and their own workers.
Sustainable ETFs are one of the best ways to invest ethically, especially for those who want to take a hands-off approach to their portfolio. That’s because sustainable ETFs are professionally managed funds that can be traded just like typical ETFs.
Sustainable ETFs focus on long-term investment strategies to maximize their impact. That makes them ideal for investors who want to help create a more sustainable future but don’t want to spend a lot of time researching individual companies or sectors.
How Does a Sustainable ETF Work?
Sustainable ETFs are funds that are professionally managed by a team of financial experts who actively choose companies to include in their baskets based on certain criteria. Investors can use sustainable ETFs to build a socially responsible investment portfolio by purchasing shares in the fund.
Sustainable ETFs include companies that are socially responsible and make efforts to produce little to no negative impact on the environment or the communities where they operate.
Sustainable ETFs are traded just like typical ETFs on various stock exchanges around the world. As an individual investor, you can buy and sell these funds just like any other stock – through an online brokerage or a traditional banking institution.
How To Pick the Right Sustainable ETF
When you’re picking a sustainable ETF for your portfolio, make sure you understand what factors are used to determine the fund’s holdings. Different funds have different criteria for sustainable investing, so make sure you select a fund that aligns with your investment strategy.
You can narrow down your selection by focusing on a few key factors, including:
- The fund’s focus area – Some sustainable ETFs focus on a specific industry, while others look at a broader range of social and environmental metrics. Find out what the focus area is for the sustainable ETFs you’re considering and make sure that it aligns with your investment strategy.
- The fund’s investing style – Sustainable ETFs use a variety of different strategies to maximize their impact. Make sure you understand the investing style of each sustainable ETF you’re considering and how it will affect your portfolio.
- The fund’s investment mandate – Sustainable ETFs have a set of rules for what types of companies they can invest in and what types of companies they can’t invest in. Remember that sustainable ETFs are actively managed funds, so their investment teams can change the fund’s holdings based on the investment mandate.
The Bottom Line
If you want to create an ethical investment portfolio but don’t want to spend a lot of time researching companies, sustainable ETFs can be a great choice. These funds invest in companies that have a positive impact on the environment, society and their own workers.
Finding a sustainable ETF that aligns with your investment strategy is key, so make sure you understand each fund’s criteria before purchasing shares.