Lately, investors are more often pouring their money into companies they can stand behind, according to Quad-City financial adviser Brian Ramsay.
Sustainable investing — or considering environmental, social and governance (ESG) factors when investing — has grown increasingly common. That means several investors are prioritizing how companies respond to climate change, manage resources and supply chains, or other responsibility factors.
"Clients have been making it known they're conscious of the environment, or making sure they aren't investing in tobacco or firearms, things like that," said Ramsay, with WealthSpan Partners in Davenport. "Some people flat-out request they want me to build them a socially conscious portfolio."
The Wall Street Journal reported, for example, after the U.S. withdrew from the Paris climate accord, investors moved more money into sustainable funds. Similar trends have taken place after mass shootings.
Ramsay said sustainability is becoming an increasingly important factor in companies' successes. And, for individuals, investing money in companies that align with certain values can prove, "your money is your vote."
Here is some of his advice on sustainable investing.
Start with socially responsible funds
While it's important to research companies on your own, investing in sustainable funds is a good place to start, Ramsay said.
There are hundreds of ESG funds that offer diversification and an evaluation of a company's records. Socially conscious funds often do the vetting for you, plus offer a shareholder screening or voting process, he said.
Some funds allow investors to put their money toward certain causes, such as supporting clean energy, avoiding contributing to the weapons industry or prioritizing gender diversity on boards of directors.
The focus of investing depends on the individual, Ramsay said. But, like with any investing, it's important to stay diversified.
Understand the risk
ESG investing is on the rise, as is the profitability of companies holding themselves to sustainable standards, according to Forbes.
But Ramsay said investors need to understand the risk.
"They need to understand the risks involved," he said. "The biggest thing here is proof of a fund's performance. Is your money actually making a difference in social responsibility and the initiatives that companies are taking?"
It's important to screen funds for performance, to target funds with strong returns and sustainability ratings. Plus, he advises regularly monitoring funds on your own or with a financial adviser.
Investing in smaller sustainable companies, or even a clean energy fund, can be risky, he said, because they're not always as profitable as other mutual funds. He said investing in causes you care about might mean "giving up a little bit of performance to make change."
"It's tough to prove whether or not a company will make more money, but what has been noticed is because of this wave of socially responsible investing, more of your money is actually causing change," Ramsay said. "When the country gets together and invests in funds that focus on climate change and gender equality and things like that, their investment dollars are forcing change."