NextGen Investing: Millennials and the rise of ethical investing

Young investors want to get rich, but not at any price. Some millennials are using a strategy known as ethical investing, where they invest in companies they believe have a positive impact on society and the planet, such as sustainable energy. At the same time, they avoid companies they believe have harmful products, such as tobacco sellers. Also known as ESG investing (an acronym for environmental, social and governance), ethical investing has become mainstream, with several mutual funds embracing the concept.

While no investment is guaranteed, the performance of ethical funds has been shown to be similar to the performance of traditional funds — and some research shows that ethical fund performance may be superior.

Two types of investments you may consider for an ethical investing portfolio are stocks and mutual funds. Here’s what you need to know:

Individual stocks. It’s generally a good idea to limit the portion of your portfolio that’s in individual stocks, but if there is a company you expect will perform well over time, you might want to include it. Some companies offer a sustainability report, which will give you a sense of any green energy or cultural initiatives they’ve taken on, and what kind of environmental impact the company has. It’s also a good idea to see how a company’s employees rate the work culture through an independent site such as Glassdoor.

Mutual funds. These are a quick and easy way to diversify your portfolio, and there is a growing field of ethical funds to choose from. Mutual funds invest according to criteria laid out by the fund manager, which can include ESG factors. If your broker offers a screening tool, you can explore different funds and stocks to find the ones that will best fill out your ethical portfolio.