Some twenty years ago, I wanted to invest in companies that reflected my values. It wasn’t that easy to do. While the concept of socially responsible managed funds has been around since the seventies, by the nineties there still weren’t that many out there, and generally they didn’t have a long or stellar track record. And there definitely weren’t any tools allowing me to evaluate companies myself.

As a result, I ended up in an uncomfortable mish-mash of solar power companies, clean water plays, and other greenish investments, with mixed results that I’d rather not talk about.

But the age of sustainable investing for everyone appears to have finally arrived.

What is sustainable investing?

Broadly speaking, sustainable investing is an investment strategy which puts your money into assets consistent with specific ethical principles, presumably yours. However, it’s not just an exercise in feeling good about yourself. Sustainable investing can reduce long-term risk and enhance financial performance.

Sustainable investing can be a blanket term for related strategies, including values-based investing, ethical investing, ESG investing, socially responsible investing, and impact investing.

Why so many terms, and what’s the difference between them?

While these terms are sometimes used interchangeably, there are differences.

Socially responsible Investing (SRI) typically involves negative screening on Environmental, Social, and Governance (ESG) criteria – depending on the investment manager, this may mean excluding a wide variety of investments; for example, fossil fuel producers, firearms manufacturers and tobacco companies. This is the oldest and most common form of sustainable investment.

Impact investing uses positive screening – instead of just avoiding companies that have a poor track record on ESG issues, impact investors seek out firms that are actively looking to do good. This strategy is necessarily more risky than negative screening, but you get the warm and fuzzy feeling of knowing that your money is advancing society.

Why would I do it?

Why wouldn’t you? You and your money can do some good in the world (or at least less bad) and get rewarded with the above-mentioned feel-good dopamine release.

But what about my returns?

Returns matter. Unless you’re Warren Buffett or Mark Zuckerberg, you likely can’t afford to gamble away a million here or there (and if you are Buffett or Zuckerberg, thanks for reading and please like or share this article.)

Fortunately there’s a lot of evidence that companies with high ESG scores perform better in the marketplace.

Fund rating company Morningstar says that “funds that explicitly embrace ESG as part of their prospectus… tend to have better star ratings. That means their risk-adjusted returns within their category tend to be a little better than what you’d expect for the overall universe.”

Research from the Harvard Business School found that “firms with good performance on material sustainability issues significantly outperform firms with poor performance on these issues, suggesting that investments in sustainability issues are shareholder-value enhancing.”

And a 2015 metastudy in the Journal of Sustainable Finance and Investment looked at 2200 other studies linking ESG with Corporate Financial Performance and concluded that “Investing in ESG pays financially.”

It makes sense. Ethical considerations aside, paying attention to environmental, social, and governance factors is a means of avoiding risk that may not emerge from traditional analysis.

For example, a company whose supply chain is vulnerable to disruptive weather events could be adversely impacted by climate change. Companies which demonstrate unethical behaviours such as poor treatment of workers, or who engage in environmentally unfriendly practices like rain forest destruction have seen their brands punished in the market. Firms with fossil fuel assets in the ground may see their value plummet due to regulatory changes or substitute technologies that emerge from the fight against global warming.

These kinds of issues can be flagged by ESG analysis before they hit the P&L and the share price.

If this is such a great idea, why isn’t everyone doing it?

More and more, they are, especially at the institutional level. In the US, assets managed sustainably grew by a third from 2014 to 2016, covering about 20% of professionally managed assets. In Europe over half of professionally managed assets qualify, and in Canada it was 38% at the start of 2016.

Recently Larry Fink, founder and head of fund giant BlackRock, said in his annual letter to his CEOs “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”

The times are changing, and quickly.

So how do I invest sustainably?

Mutual Funds and ETFs: As a retail investor, the easiest way to get involved is to buy sustainable mutual funds or ETFs, of which there are many.  They come in all kinds of flavours, from funds which track indices but with particular industries filtered out, to impact funds specializing in certain sectors, so it’s important to understand what you’re looking for. Check with your current financial services provider or try a Google search.

Robo-Advisors: Many automated investing services, aka robo-advisers, such as WealthSimple in Canada or Betterment in the US, offer sustainable portfolio options. A growing number of American firms like Earthfolio specialize in socially responsible investing.

Financial Advisors: If you work with a financial advisor, ask him or her about sustainable investing. Some advisors work with companies like Sustainalytics or MSCI ESG Research, who provide in-depth data and analysis on the ESG performance of specific companies to a largely institutional client base.

Self-Directed: For self-directed investors looking for ESG analysis of individual firms, some tools are available. In Canada, Scotia iTRADE offers a suite of tools to evaluate companies on ESG criteria, while in the US, Merrill Edge provides sustainability rankings and information for their clients.