This form of investing is commonly referred to as ESG investing, and it evaluates companies based on three key factors:

• Environmental: How a company impacts the environment, including energy use, pollution, and sustainability practices.
• Social: How a company treats people, including employee well-being and customer satisfaction.
• Governance: How a company is managed, including leadership transparency, ethics, and accountability.

Rather than focusing on short-term gains, ESG-focused investors prioritize stability and responsible growth. This approach aligns closely with long-term investing strategies by understanding how companies manage long-term risks and adapt to future challenges.

Why it Matters

In today’s economy, sustainability has become more of a financial issue than a mere moral consideration. ESG investors believe that climate regulations and corporate transparency directly affect business performance. Companies that ignore these factors can face potentially large fines or decreased consumer trust, which can negatively impact long-term profitability.

For many investors, considering ESG factors while investing provides additional insights into risk and opportunities that prioritize value. Sustainable investing helps identify companies that are better prepared for economic shifts and changing consumer expectations.

Although a common concern is whether sustainable investing sacrifices returns, some market data show that companies which manage environmental risks treat employees fairly tend to be more adaptable and well-trusted. The jury is still out on whether ESG reliably leads to higher long-term financial returns, however.

Sustainable investing helps investors invest with purpose while maintaining financial goals. It is not solely about choosing values over returns, but rather, gaining the understanding that financial success and ethical business practices are increasingly connected.