Sustainable Investing

Episode 28 of The Smarter Money Show dives into sustainable investing, showing how to grow wealth while supporting environmental, social, and governance (ESG) values. A 2020 Morgan Stanley study found ESG funds outperformed traditional funds 64% of the time from 2004–2018, with examples like ESGU returning 18% in 2020.

The episode covers ESG pillars - environment (e.g., Tesla), social (e.g., Unilever), and governance (e.g., Microsoft) - and global trends, like Europe’s $2.8 trillion ESG market. Practical strategies include investing in low-cost ESG ETFs like ESGV or green bonds, starting with as little as $100. A roadmap guides listeners to define values, verify ESG claims, and diversify to balance impact and returns.

Episode Transcript

Speaker 1 (00:00):
As always before we begin, this podcast is for informational
and educational purposes only. It is not financial advice. Always
do your own research and consult with a licensed advisor
before making any investment decisions. Welcome back to the Smarter
Money Show. I'm your host, and this is episode twenty eight.
Picture this. You're building wealth for your future, but your

(00:21):
investments are also fighting climate change, promoting fair workplaces, and
supporting ethical businesses. That's the promise of sustainable investing, and
today we're diving deep into how to align your portfolio
with your values, whether it's protecting the environment, advancing social justice,
or ensuring corporate accountability without sacrificing returns. If you've ever

(00:42):
wondered how to make your money work for both profit
and purpose, this episode is your guide. Sustainable investing, often
called ESG Environmental social governance investing, isn't about sacrificing gains
for good intentions. It's about making smart financial choices that
reflect what matters to you, while capitalizing on the resilience

(01:02):
of companies that prioritize long term sustainability. In a world
grappling with climate crises, social inequality, and governance scandals, Sustainable
investing offers a way to grow wealth while driving positive change,
whether you're in the US, Germany, Canada, or beyond. Over
the next forty plus minutes will cover what sustainable investing
is and why it's reshaping global markets. The core pillars

(01:25):
of ESG and how they guide smarter investment decisions, historical data,
performance trends, and real world examples of ESG success. Global
perspectives on sustainable investing and cultural influences. Practical strategies to
build a sustainable portfolio even on a modest budget, Common myths, risks,
and how to navigate them. A comprehensive action plan to

(01:46):
invest with impact and discipline. Let's start by unpacking what
sustainable investing really means and why it's more than a
passing trend. What is sustainable investing? Sustainable investing focuses on companies, funds,
or projects that meet Environmental, Social and Governance ESG criteria

(02:06):
while delivering competitive financial returns. Unlike traditional investing, which prioritizes
financial metrics like revenue or profit margins, sustainable investing evaluates
how businesses impact the planet, treat their stakeholders, and uphold
ethical leadership. For example, you might invest in a company
like Tesla for its electric vehicles, Unilever for its fair

(02:28):
trade practices, or Microsoft for its transparent governance. The growth
of ESG is staggering. A twenty twenty three morning Star
report found global ESG assets reached two point eight trillion dollars,
up twenty percent from twenty twenty, driven by retail and
institutional investors in the US, Europe, and Asia. This isn't

(02:49):
just for high net worth individuals. Options like ESG ETFs
start at ten dollars, making sustainable investing accessible to everyone.
In Germany, ESG funds through twenty five percent annually from
twenty eighteen twenty twenty three, while in Canada, thirty percent
of investors now prioritize ESG per a twenty twenty two

(03:09):
RBC survey. Why does it matter Beyond aligning with personal values?
ESG factors signal financial resilience. Companies with strong ESG practices
often outperform during crises, as they're better equipped to handle
risks like climate regulations, labor disputes, or governance scandals. A
twenty twenty one McKinsey study found that high ESG firms

(03:31):
had twenty percent lower volatility during market downturns, making them
a smart choice for long term investors. Core pillars of
ESG ESG investing rests on three interconnected pillars, each guiding
investment decisions. Environmental assesses a company's impact on the planet,
including carbon emissions, renewable energy adoption, waste reduction, and biodiversity protection. Example,

(03:56):
Tesla's focus on electric vehicles and solar energy reduced emissions,
earning high environmental scores. Next Era Energy, a leader in renewables,
cut emissions by thirty percent from twenty fifteen twenty twenty.
Why it matters. Climate risks like carbon taxes or resource
scarcity threatened profits. ESG firms are better positioned for future regulations.

(04:19):
Social evaluates how a company treats employees, customers, and communities,
focusing on labor practices, diversity, human rights, and community engagement. Example,
unilevers commitment to fair trade, gender equality, and sustainable sourcing
boost its social rating, with fifty percent of its supply
chain certified fairtrade by twenty twenty three. Why it matters.

(04:42):
Strong social practices reduce labor disputes and enhance brand loyalty,
driving long term value. Governance examines corporate leadership, transparency, anti
corruption measures and shareholder rights. Example, Microsoft's ethical AI policies
and transparent reporting earned it a top governance score from
MSCI in twenty twenty three. Why it matters Good governance

(05:07):
minimizes scandals and alignance management with shareholder interests, reducing risk.
Investors use ESG scores from providers like MSCI, Sustainalytics, or
Bloomberg to evaluate companies. A high score doesn't guarantee returns,
but signals lower risk and alignment with sustainable goals. For example,
a portfolio with seventy percent high ESG stocks like Apple

(05:28):
and thirty percent green bonds balances impact and stability. Historical
performance and data. Does sustainable investing mean lower returns? That
data says no. A twenty twenty Morgan Stanley study found
ESG focused funds matched or outperformed traditional funds sixty four
percent of the time from two thousand four twenty eighteen,

(05:51):
with fifteen percent lower volatility. The MSCI World ESG Leaders
Index tracking high ESG companies return and eight point five
percent annually from twenty ten twenty twenty, nearly matching the
broader MSCI World's eight point seven percent from twenty fifteen
twenty twenty three, the I shares ESG AWARE, MSCI USA

(06:14):
ETF EESGU delivered nine point two percent annually, slightly ahead
of the S and P five hundreds nine percent. Real
world examples highlight eesg's resilience. Twenty eighteen twenty twenty oil crisis,
ESG funds underweight in fossil fuels gained as oil stocks
like Exonmobile fell thirty percent, while renewable energy stocks like

(06:38):
next Era Energy rose fifty percent. COVID nineteen recovery twenty twenty,
ESGU returned eighteen percent, edging out the S and P
five hundreds sixteen percent due to strong tech for example
Apple and healthcare for example Pfizer Holdings. Twenty twenty two
market downturn, ESG fund like Vanguard ESG US stock ESGV

(07:03):
lost eighteen percent versus twenty percent for the broader market
thanks to underweighting volatile energy sectors. European Green Transition Germany's
DWS ESG Climate Tech fund return ten percent annually from
twenty eighteen twenty twenty three, driven by wind and solar
investments per morning Star. However, performance isn't universal. Some ESG

(07:26):
funds underperformed due to high fees zero point five to
one percent versus zero point zero three percent for vo
or sector biases. For example, avoiding oil during a twenty
twenty one rally, diversifying and choosing low cost funds mitigates
these risk. Global perspectives on sustainable investing. Sustainable investing varies

(07:48):
across regions, shaped by cultural and economic factors. US ESG
adoption is driven by climate and social concerns, with thirty
five percent of retail investors prioritizing ESG per a twenty
twenty three Fidelity Survey. Tech heavy ESG ETFs like ESGU
are popular, but greenwashing is a concern. Europe. Europe leads

(08:11):
in ESG with fifty percent of fund assets in sustainable
options per a twenty twenty three EFAMA report. Germany's focus
on renewable energy and strict ESG regulations. For example, EU
taxonomy drives funds like I Sharries MSKE, Europe ESG I S.
Canada ESG funds focus on clean energy and indigenous rights,

(08:34):
with thirty percent of investors favoring ESG per a twenty
twenty two RBC survey. Funds like BMO Clean Energy ETF
ZCLN gained twelve percent annually from twenty eighteen twenty twenty three.
Emerging markets in India. ESG funds target clean water and
renewable energy, but limited options in high fees one two

(08:56):
percent hinder adoption per A twenty twenty two. To CB report,
Brazil's ESG funds focus on deforestation, with funds like I
Shares MSCI Brazil ESG outperforming local markets. These differences highlight
the need to tailor ESG strategies to local markets while
using globally diversified funds to balance exposure practical strategies. To

(09:21):
build a sustainable portfolio, you don't need a fortune to
invest sustainably. Here's how to start even on a budget.
ESG ETFs and mutual funds. Low cost ETFs like I Shares,
ESG aware, MSCI USA EESGU zero point one five percent
expense ratio or Vanguard ESGUS stock ESGV zero point zero

(09:45):
nine percent offer exposure to five hundred plus high ESG companies. Example,
a one thousand dollars investment in ESGV buy shares in Apple, Microsoft,
and other ESG leaders with nine percent annual returns twenty
eighteen twenty twenty three individual stocks. Use msci's EESG database

(10:06):
or sustainalytics to identify high rated companies like Tesla Environment Salesforce,
Social or Accenture Governance. Example investing five hundred dollars in
next Era Energy, a renewable energy leader supports green goals
and delivered ten percent annual returns from twenty fifteen twenty twenty.
Green bonds invest in bonds funding environmental projects like Apples

(10:29):
green bonds or municipal bonds for solar farms. Example. A
one thousand dollars green bond yielding three percent supports climate
initiatives while providing thirty dollars annual income. Robo advisors platforms
like Betterment, Wealth Simple or Germany's Scalable Capital Offer ESG
portfolios with low minimums one hundred dollars five hundred dollars example.

(10:51):
Betterment Socially Responsible Investing portfolio allocates to ESGU and green
bonds tailored to your risk level. Impact investing to TIS
target specific causes, for example, clean water, affordable housing via
funds like Calvert Global Water Fund or platforms like Kiva
twenty five dollars minimum example a five hundred dollars Kiva

(11:13):
investment funds micro loans for sustainable businesses in Africa with
ninety six percent repayment rates. Thematic funds focus on niche
ESG areas like clean Energy Investo Solar ETF TAN or
Gender Equality Spider Gender Diversity ETF SSG. Example, TAN return
fifteen percent annually from twenty eighteen twenty twenty three, driven

(11:36):
by solar demand. For a ten thousand dollars portfolio, you
might allocate five thousand dollars to ESGU, two thousand dollars
to a green bond, two thousand dollars to next Era Energy,
and one thousand dollars to Kiva. Balancing impact and diversification.
Common myths and risk Sustainable investing faces misconceptions and challenges.

(11:58):
Myth ESG sacrifices returns. Data shows ESG funds often match
or outperform traditional funds, with sixty four percent beating peers
from two thousand and four twenty eighteen. Per Morgan Stantley.
Myth it's only for activists, ESG appeals to all investors
seeking resilience, not just those with social agendas. A twenty

(12:21):
twenty three Black Rock survey found seventy percent of investors
prioritize ESG for risk management risk greenwashing companies like Volkswagen
have exaggerated ESG credentials. Use MSCI or sustainalytics ratings to
verify claims. Risk high fees. ESG funds may charge zero
point five to one percent versus zero point zero three

(12:42):
percent for VOO. Stick to low cost ETFs like ESGV
or ESGU risk sector bias. ESG funds often underweight energy
or tobacco, lagging during sector rallies for example Oil in
twenty twenty one. Diversify with broad market eesa G funds.
Risk data gaps, ESG ratings vary across providers, complicating comparisons.

(13:07):
Cross reference multiple sources for accuracy. Mitigate risks by starting small,
diversifying and verifying ESG claims with reputable tools. Step by
step action plan. Ready to invest with impact. Here's a
detailed roadmap. Define your values. Identify priorities like climate change,
diversity or ethical governance. To guide your choices, write down

(13:30):
two three focus areas research ESG options. Use morning Star,
MSCI or sustainalytics to find high rated ETFs for example,
ESGU stocks for example TESLA or bonds aligned with your goals.
Start small, allocate five ten percent of your portfolio to
ESG assets one hundred dollars one thousand dollars in ESGV

(13:53):
or green bonds. Increase as you gain confidence. Verify ESG claims,
cross check ratings from MSCI or sustainalytics to avoid greenwashing.
Avoid funds with vague sustainable labels. Diversify for balance. Combine ESG, ETFs,
green bonds, thematic funds, and impact investments to spread risk
and impact. For example, three thousand dollars e SGU one

(14:17):
thousand dollars ten one thousand dollars Kiva monitor and rebalance.
Review your portfolio annually to ensure alignment with values and performance.
Rebalance if one sector, for example, tech dominates, stay informed,
follow ESG trends via Bloomberg, morning Star or ex posts
from reputable sources like black Rock or Vanguard. For example,

(14:39):
a twenty thousand dollars portfolio might allocate ten thousand dollars
to ESGU, five thousand dollars to nexts Era Energy, three
thousand dollars to a green bond, and two thousand dollars
to Calvert Global Waterfund, supporting climate and water access while
targeting eight nine percent returns Sustainable investing empowers you to
grow wealth while making a positive impact on the world.

(15:02):
By choosing ESG focused funds, stocks, or bonds, you can
support climate action, social equity, and ethical governance without compromising returns.
It's about investing with purpose, discipline, and a vision for
a better future. As a reminder, this podcast is for
informational and educational purposes only. It is not financial advice.
Always do your own research and consult with a licensed

(15:23):
advisor before making any investment decisions. If you found this
deep dive inspiring, follow the Smarter Money Show, leave a
review and share it with someone who wants to invest
with impact. They might discover a way to align their
money with their values. In our next episode, we'll explore
passive income strategies how to create streams of income that
work for you while you sleep. Until then, stay smart,

(15:45):
stay patient, and stay invested.