In collaboration with
iShares by BlackRock, a global leader in ETFs
Investing sustainably is a goal that more and more investors are looking to achieve.1 For those in search of sustainable exposures, exchange traded funds (ETFs) offer efficiency, transparency, and numerous other benefits.
Many investors today aren’t focused solely on maximizing the return on their investments, they have other objectives as well.
One is investing sustainably. In fact, 73% of investors recently expressed interest in pursuing a sustainable investing strategy.2 And for those looking for sustainable exposure, it’s almost never been easier to put your money into ETFs with sustainable and social characteristics.
In this guide, we’ll break down what sustainable investing is and the benefits of investing in ETFs.
1Source: BlackRock. https://www.ishares.com/us/literature/brochure/ishares-sustainable-investing-brochure-website.pdf.
2Source: “Exchange Traded Funds: The global view from asset owners and asset managers”, BlackRock and Institutional Investor Custom Research Lab, 2023.
What is sustainable investing?
Sustainable investing is an investing strategy with environmental, social, and/or governance (ESG) objectives, themes, and related considerations as a principal means for selecting investments.
Some of these themes include climate risk, health and safety of workers, and corporate ethics — insights that may, as Lukas Smart, Head of US Sustainable and Factor Strategies at iShares, notes “uncover hidden opportunities and risks of a potential investment.”
“Sustainable insights may uncover hidden opportunities and risks of a potential investment.”
Lukas Smart, Head of US sustainable and factor strategies, iShares
Potential opportunities through sustainable investing
Three large-scale economic shifts are creating potential sustainable investing opportunities. These include:
- Government policies – Such as the U.S. Inflation Reduction Act and Europe’s RepowerEU, which are helping to facilitate growth in capital investment related to the transition to a low-carbon economy.
- Technological innovation – Which is helping to reduce the cost of low-carbon technologies and processes, making them more competitive versus traditional energy. For example, there has been an 85% reduction in solar costs over the past decade.*
- Consumers and investors – Who in many regions are showing increased preference for lower-carbon products and assets in sustainable investing products. For example, global annual sales of electric vehicles doubled in 2021 alone.3
Investing in the companies or governments who are at the forefront of these economic shifts may allow you to capture the growth and navigate unforeseen risks that may arise from these new developments.
3International Energy Agency, June 2022.
4Net Zero Tracker, August 2022.
How to invest sustainably using ETFs
While you could invest through the purchase of individual stocks in companies that meet your sustainability criteria, there are some downsides:
- It may be costly and time consuming: Performing an analysis on the sustainability characteristics of every individual investment may require a lot of time. Buying and selling multiple individual stocks can also be costly.
- Some investments may not be easily accessible: For example, green bonds, which are issued to help fund environmental projects, may be difficult for investors to access because these asset classes do not trade on exchanges.
Because of these downsides, you may want to consider sustainable ETFs when aligning sustainability considerations to your investment goals.
ETFs track the performance of a particular index, such as the S&P 500, and are traded on stock exchanges, just like individual stocks, providing investors with exposure to a diversified portfolio of securities.
Sustainable ETFs specifically seek to track indexes that look for companies that hold certain sustainability characteristics.
You don’t need to do your own analysis of the sustainable exposure on every investment, the ETF does it for you.
| Investing sustainably with ETFs |
- Diversification: By spreading your investment across many different stocks and bonds, you can reduce the risks associated with individual securities.
- Simplified investing: Many sustainable ETFs track indexes that screen for companies on the basis of certain sustainability insights, which may help save you time. For instance, there are ETFs that seek to track an index that includes companies whose business practices are compatible with global sustainability objectives such as the Paris Agreement or the United Nations Sustainable Development Goals.5
- Accessibility: Sustainable ETFs can offer you access to investing opportunities that are not as readily available to most investors. For instance, green bonds, which are issued to help fund environmental projects, are not easily accessible, given that most investors are unable to access traditional bonds.
- Lack of personalization: How you define sustainability criteria may be different from certain sustainable ETFs, and they may be invested in companies that are not aligned with your definition.
An example of a sustainable ETF is a clean energy ETF, which may include companies that are involved in the production and distribution of renewables, such as wind and solar.
There are also ETFs that screen for companies whose business practices are compatible with global sustainability objectives such as the Paris Agreement and the United Nations Sustainable Development Goals.6
5For more information on the United Nations Sustainable Development Goals, see here: https://sdgs.un.org/goals. For more information on the Paris Agreement, see here: https://www.un.org/en/climatechange/paris-agreement.
6United Nations. https://sdgs.un.org/goals.
Conclusion
Investing sustainably may allow you to capture new opportunities that are emerging in part from changes in government policy, technological innovation, and shifting consumer preferences.
Sustainable ETFs can help make it easier to invest sustainably because these products may offer built-in analyses that screen for companies that have certain sustainability characteristics.
Want to see how sustainable ETFs can fit into your investing strategy? Get started through eToro’s virtual portfolio.
About iShares by BlackRock
iShares unlocks opportunity across markets to meet the evolving needs of investors. With more than twenty years of experience, a global line-up of 1300+ exchange traded funds (ETFs) and $3.12 trillion in assets under management as of September 30, 2023, iShares continues to drive progress for the financial industry. iShares funds are powered by the expert portfolio and risk management of BlackRock.
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