Socially Conscious Investing: How to Choose Sustainable Stocks and Mutual Funds

“Vote with your pocketbook,” the saying goes, prompting consumers to buy parkas from planet-friendly Patagonia or socks by Bombas, which donates a pair to homeless shelters for every pair purchased. When choosing stocks and mutual funds, a growing number of investors don’t just want to get a good return on their investment, they also seek to support corporations that spread kindness, protect (or do not pollute) the environment and support women, minorities and LGBTQ+ people.

This year, the National Association of Securities Dealers Automated Quotations (NASDAQ) reported that environmental, social and corporate governance investing “represents more than $8 trillion in assets under management in the U.S. alone, and people expect the worldwide number to surpass $50 trillion by the end of 2025.”

These types of mutual funds can yield returns akin to conventional funds, says Michael Young, director of education and outreach for the U.S. Forum for Sustainable and Responsible Investment (US SIF), a Washington, D.C.-based nonprofit. Some industries, such as oil and gas, may be more eco-challenged than others, but companies can and should make best efforts relevant to their industries, he says, suggesting that investors review a company’s corporate social responsibility report, which provides insight into their environmental and social practices.

Young recommends that new investors start by determining which social and environmental issues matter most to them. From there, tools such as the free US SIF sustainable investing course (ussif.org/courses_individualinvestors) offer an overview of sustainable investing, as well as investment options and strategies. He also encourages a visit to As You Sow (asyousow.org/invest-your-values) to help investors find the companies and mutual funds that align with their social and environmental principles, and to steer clear of those that don’t. 

“Most people invest in companies through fund structures via retirement plans or online brokerages,” Young explains. “Through As Your Sow, they have search tools that help interested investors determine if they own funds that include companies in fossil fuels, weapons manufacturing or other industries one might not want to invest in.”

Robin Diedrich, the director of sustainable investing for Edward Jones, asserts that their division arose over the past few years as a result of client demand. The analysts in her division evaluate whether the stated sustainability and financial objectives of a fund are actually being met, using vetting tools like Morningstar (Morningstar.com/topics/sustainable-investing). “Morningstar has become much more rigid in their methodology. They’re trying to make sure that what’s being labeled as sustainable is truly that,” she says. 

Diedrich advises investors to use the same criteria that they would use with any fund, whether traditional or sustainable. “It’s important that you look at a sustainable fund in that same way, because it is an investment with your money,” she says. “Ultimately, it needs to be driven by clients’ personal choices, as well as their financial goals.”

Sustainable Investing Goes Mainstream

Green Century Funds (GreenCentury.com) is a mutual funds company that engages corporations on behalf of its shareholders to seek specific outcomes. Young says Green Century Funds’ efforts worked with companies like Starbucks, Conagra Foods and Hormel Foods to eliminate deforestation from their supply chains. “There are ways to leverage your dollar to make an impact, because as an individual, you likely couldn’t convince a large corporation to do that,” Young notes.

Ceres, a nonprofit headquartered in Boston, works with investors, companies and capital market influencers to drive action on sustainability issues. It is the co-founder of numerous sustainability enterprises, including Net Zero Asset Managers, a global initiative through which large institutional investors have committed to support net zero greenhouse gas emissions across the economy by 2050 and interim emissions reductions by 2030. Similarly, many pension funds are signatories to the Paris Aligned Asset Owners, meaning that they also support net zero greenhouse gas emissions by 2050. 

Because of the sheer volume of their trades, institutional investors and pension fund managers have a great deal of clout and are able to influence corporate leaders to take environmental stewardship seriously. Their commitment to net zero greenhouse gas emissions means that corporations are pressed hard by these investors to eliminate emissions by the stated deadlines.

"As the climate crisis has worsened over the years with extreme weather disasters causing multi-billion-dollar losses, disrupting supply chains and affecting corporate business operations, investors have increasingly recognized climate change as a financial risk. Most institutional investors now analyze climate-related financial risks and opportunities and incorporate those risks and related sustainability risks into their decision making,” says Kirsten Snow Spalding, vice president of the Ceres Investor Network. 

Sheila Julson is a freelance writer and frequent contributor to Natural Awakenings.