--- title: The Ultimate Guide to Sustainable Investing | Carbon Collective (4) description: The Ultimate Guide to Sustainable Investing is Carbon Collective's comprehensive guide on sustainable investing. Read how your investments solve climate change. (4) image: https://www.carboncollectiveinvesting.com/hubfs/UGtSI%20-%20Ultimate%20Guide%20to%20Sustainable%20Investing/Books@2x%20(1).png --- [![White Logo - Carbon Collective@2x](https://www.carboncollectiveinvesting.com/hs-fs/hubfs/White%20Logo%20-%20Carbon%20Collective@2x.png?width=744&height=226&name=White%20Logo%20-%20Carbon%20Collective@2x.png "White Logo - Carbon Collective@2x")](https://www.carboncollectiveinvesting.com/) - About - Employers - [Sustainable 401(k)](https://www.carboncollectiveinvesting.com/401k) - [401(k) Comparison Tool](https://www.carboncollectiveinvesting.com/401k/plan-comparison-tool) - Individuals - [FAQ](https://www.carboncollective.co/en/knowledge/faqs) - [ETF](https://www.carboncollectivefunds.com/) - Learn - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing) - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics) - [Blog](https://blog.carboncollective.co/) - [Tools](https://tools.carboncollective.co/calculator/) - Log in - [Carbon Collective](https://app.carboncollective.co) - [Altruist](https://app.altruist.com) [Talk to James](https://ask.carboncollective.co/f70pooobq) [Sign up](https://www.carboncollectiveinvesting.com/waitlist) [![Carbon collective](https://www.carboncollectiveinvesting.com/hubfs/raw_assets/public/CarbonCollective_August2021/images/carbon-collective-green-investing-logo.53b28bee.svg "Carbon collective")](https://www.carboncollectiveinvesting.com/) - About - Employers - [Sustainable 401(k)](https://www.carboncollectiveinvesting.com/401k) - [401(k) Comparison Tool](https://www.carboncollectiveinvesting.com/401k/plan-comparison-tool) - Individuals - [FAQ](https://www.carboncollective.co/en/knowledge/faqs) - [ETF](https://www.carboncollectivefunds.com/) - Learn - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing) - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics) - [Blog](https://blog.carboncollective.co/) - [Tools](https://tools.carboncollective.co/calculator/) - Log in - [Carbon Collective](https://app.carboncollective.co) - [Altruist](https://app.altruist.com) [Talk to James](https://ask.carboncollective.co/f70pooobq) [Sign up](https://www.carboncollectiveinvesting.com/waitlist) **[Home](https://www.carboncollectiveinvesting.com/) > Sustainable Investing** # Sustainable Investing ![](https://www.carboncollectiveinvesting.com/hubfs/zach-stein.jpeg) Written by Zach Stein | Reviewed by [Subject Matter Experts](https://www.carboncollectiveinvesting.com/subject-matter-experts) Updated on October 1, 2024 Fact Checked Why Trust Carbon Collective? **Table of Contents** Created by Brooke Tomasetti April 16, 2022 ![](https://www.carboncollectiveinvesting.com/hubfs/001-facebook.png) [![](https://www.carboncollectiveinvesting.com/hubfs/010-linkedin.png)](https://www.linkedin.com/in/brooketomasetti/) [![](https://www.carboncollectiveinvesting.com/hubfs/013-twitter-1.png)](https://twitter.com/bhtomasetti) [Chapter 1: Why Investing is the Only (Realistic) Path to Solving Climate Change](https://www.carboncollective.co/sustainable-investing) [Chapter 2: Why Your Retirement Fund Matters for Solving Climate Change](https://www.carboncollective.co/sustainable-investing/why-investing-matters) [Chapter 3: Why Sustainable Investing Will Likely Outperform](https://www.carboncollective.co/sustainable-investing/performance) [Chapter 4: The Current Sustainable Investing Landscape](https://www.carboncollective.co/sustainable-investing/current-landscape) [Chapter 5: How to Be a Better Investor](https://www.carboncollective.co/sustainable-investing/investing-basics) [Chapter 6: Summary and Conclusion](https://www.carboncollective.co/sustainable-investing/conclusion) **Table of Contents** ![UGtSI - Email Course Image V1](https://www.carboncollectiveinvesting.com/hs-fs/hubfs/UGtSI%20-%20Email%20Course%20Image%20V1.png?width=300&name=UGtSI%20-%20Email%20Course%20Image%20V1.png) ## Don't Have Time to Read the Entire Guide Right Now? **Join the Free Sustainable Investing Email Course!** One bite-sized email every day for 2 weeks. Learn everything you need to know to understand and start talking about sustainable investing! Sustainable investing is not just a trend, but a smart way to invest. Learn what sustainable investing means, how it’s an important climate solution, and what the future holds for climate-friendly investing. ## What Is Sustainable Investing? Sustainable investing is an investment strategy that focuses on holding stock in companies that are building solutions to climate change, and divesting from (not holding stock in) fossil fuel companies. This is different from environmental, social, and governance (ESG) funds in that many ESG portfolios and funds still hold fossil fuel companies. For investors who care about climate, ESG often does not align with their financial and ethical standards. This is where sustainable investing comes in. ## The Importance of Sustainable Investing Green investing is not only good for the environment, but it can also be a smart investment. We believe that fossil fuels are likely to underperform as investments over the coming years, and are no longer a “necessary evil” when it comes to building a diversified portfolio. A few quick stats to illustrate this point: - From 1989 to 2021, the S&P 500 would have performed better without fossil fuel stocks. - In 1980, 29% of the market capitalization of the S&P 500 (the 500 largest companies on US stock exchanges) were fossil fuel companies. As of the writing of this piece in February 2022, it represented just 3.52%. - We would argue that fossil fuels are in a bubble — It’s a debt-heavy, capital-intensive industry. If the price of oil or natural gas drops too far or too much of their margin is needed to pay an escalating carbon tax (or a carbon tariff, like the[EU's Carbon Border Adjustment Mechanism](https://voxeu.org/article/reflections-eu-s-carbon-border-adjustment-mechanism)), thousands of sites will no longer be financially viable. Dig deeper into the numbers behind divestment and climate-friendly investing in Chapter 3 where we explore the [performance of sustainable investing](https://www.carboncollective.co/sustainable-investing/performance). ### Climate Change Can't Be Solved Without Investment Secondly, sustainable investing is necessary to solve climate change. Scientists, researchers, and engineers have set goals around decarbonization and laid out viable pathways to achieve these goals (some of our favorites: [Project Drawdown](https://drawdown.org/), [IEA](https://www.iea.org/reports/net-zero-by-2050), [McKinsey](https://www.mckinsey.com/capabilities/sustainability/our-insights/the-economic-transformation-what-would-change-in-the-net-zero-transition)). While these experts have minor differences, they all basically agree on the following: to solve climate change, we need to build a lot of stuff. We have to completely transition our global energy system to run without fossil fuels, from electricity to cars, ships, and industry.  From solar panels to battery gigafactories to long-distance, high voltage power lines, this approach will require the creation of additional infrastructure for renewable energy. And such building takes investment. And that’s just the energy system; we need to do more in agriculture and the global supply chain.  According to Project Drawdown and the Climate Policy Initiative, in 2019, the globe invested ~$600 billion into climate solutions. For humanity to achieve its target of "turning off the tap" by 2050, we need to invest closer to $5.2 trillion per year into climate solutions. That’s a lot of money. But here’s the good news:  #1 Filling that investment gap isn’t charity. Much of it is already profitable, and the rest is on a path to being profitable soon. #2 We can solve climate change and we have most of the resources to do it. Sustainable investing is not only the most realistic path to solving climate change, but it is also *smart* investing. ## Why Impact Investing is Important To avoid catastrophic 1.5ºC warming, humanity needs to invest ~9x more into climate solutions each year. We need to research, develop, test, iterate, build, deploy, and massively scale up new technologies. And we need to deploy the existing clean technologies as fast as we can.  ![sustainable investing goals](https://www.carboncollectiveinvesting.com/hs-fs/hubfs/Investment.png?width=1261&name=Investment.png) As touched on above, none of this, from early-stage R&D to building the next battery gigafactory, will happen without investment to fund it. The good news is that much of what needs to be built to "turn off the faucet" of carbon emissions is straightforward and likely to provide a strong return on investment. ## The Growth of Sustainable Investing Investment funds that focus on environmental, social, and corporate governance (ESG) are becoming increasingly popular, with major investment banks creating entire departments dedicated to ESG research and portfolio management.  Financial robo advisors such as Carbon Collective are continually developing strategies and portfolios to support both the financial objectives of individual investors and their sustainability goals that go beyond the often obscure criteria surrounding “ESG” investments. In the years ahead, we hope to expect greater transparency, accountability, and climate-friendly options in where our money is invested, helping to ensure both a healthy economy and planet. ### Moving Beyond “ESG” Investing ESG (environmental, social and corporate governance) investing is a risk framework that takes into account the environmental, social, and governance risks of a company. It seeks to generate long-term returns by investing in companies that have sound policies in place with regard to their impact on people and the planet, and minimizing environmental, social, and governance risks.  This sounds great in theory, but ESG funds and portfolios often contradict climate-focused investors’ goals. For example, the [top ESG funds](https://www.carboncollective.co/sustainable-investing/current-landscape) and portfolios still invest in fossil fuel companies — some even include ExxonMobil, for example.  Most of these funds also invest a very small percentage into companies that are focused on building climate solutions. Thirdly, the fees and expense ratios associated with many of these funds and portfolios tend to be high. The cherry on top is that companies like BlackRock pay ratings agencies a lot of money to give their ESG funds a rating — and the criteria they use to determine what qualifies as “ESG” or not isn’t public information. We believe that ESG waters down all ethical categories to the point where these portfolios are simply “less bad,” but not actively pushing for real change.  Our sustainable investing [theory of change](https://www.carboncollective.co/impact) has three parts: 1. **Divest** from all industries that rely on fossil fuels 2. **Reinvest** in the companies building climate solutions 3. **Pressure the rest** — Use our leverage as individual investors to vote & pressure companies to decarbonize In summary, sustainable investing is pulling investments away from the fossil fuel industry, reinvesting that money into climate solution companies, and using our shares to vote on aggressive shareholder climate resolutions. It is our thesis that investing in the companies building climate solutions is not only an important way we will mitigate the worst effects of climate change, but is also a smart investment. ## The Future of Sustainable Investing The future of sustainable investing is bright as more people look to align their investments with their values and do good for the planet while also earning a return.  It is important to note that the technologies we need to solve climate change already exist — and are already experiencing growth. The [IEA’s 2050 Net Zero Report](https://www.iea.org/reports/net-zero-by-2050) illustrates the type of growth required from the market-ready technologies from now until 2050. Solar, wind, and electric cars are the climate solutions most prepared for rapid growth. ## Sustainable Investing FAQs What is sustainable investing? Sustainable investing is an investment strategy that focuses on holding stock in companies that are building solutions to climate change, and divesting from (not holding stock in) fossil fuel companies. This is different from environmental, social, and governance (ESG) funds in that many ESG portfolios and funds still hold fossil fuel companies. For investors who care about climate, ESG often does not align with their financial and ethical standards. This is where sustainable investing comes in. Why is sustainable investing important? To avoid catastrophic 1.5ºC warming, humanity needs to invest ~9x more into climate solutions each year. We need to research, develop, test, iterate, build, deploy, and massively scale up new technologies. And we need to deploy the existing clean technologies as fast as we can.  None of this, from early-stage R&D to building the next battery gigafactory, will happen without investment to fund it. The good news is that much of what needs to be built to "turn off the faucet" of carbon emissions is straightforward and likely to provide a strong return on investment. What is human-driven climate change? Put simply, the challenge of human-driven climate change can be defined by three key points: 1. There is too much carbon dioxide and other greenhouse gases in our atmosphere. 2. The insulating effect of these molecules means less of the earth’s heat reflects into space. 3. The more heat that gets trapped, the more it changes our global systems. From directly melting ice caps to disrupting historic ocean and wind currents, boosting the intensity of storms, and the length and duration of droughts. How can humanity solve climate change? We can simplify the huge challenge of solving climate change into three steps: 1. Stop adding excess carbon dioxide and other greenhouse gases to the atmosphere. This requires transitioning from fossil fuels to sustainable energy. 2. Protect the remaining natural systems and start regrowing as many as we can to increase our planet’s natural carbon-carrying capacity. 3. Mop up the excess, ancient carbon dioxide until atmospheric carbon dioxide levels have returned to pre-industrial levels. What data supports the transition from coal to renewable energy? - It costs [less](https://www.pv-magazine.com/2020/10/23/its-cheaper-to-build-new-solar-than-it-is-to-operate-coal-plants/) [to build new solar arrays](https://www.pv-magazine.com/2020/10/23/its-cheaper-to-build-new-solar-than-it-is-to-operate-coal-plants/) than continue operating existing coal plants in most areas of the globe. - Campaigns to shut down coal plants and brand coal as negative for the climate and health have succeeded (like [this one from the Sierra Club](https://coal.sierraclub.org/the-campaign/success-stories)). - Even coal-reliant countries like [India have explored halting any new production of coal facilities](https://economictimes.indiatimes.com/industry/energy/power/plan-on-table-to-halt-new-coal-fired-power-plants/articleshow/88422048.cms) due to their inferior economic situations. - [Coal’s significant air pollution can lead to civil unrest](https://www.cnn.com/2019/07/10/asia/china-wuhan-pollution-problems-intl-hnk/index.html), particularly in economies with growing middle classes, like China and India. - Investors have shown a lack of confidence in the long-term potential of coal. The Dow Jones US Coal Index hit all-time lows in the summer of 2020 before Dow Jones discontinued it.     Next Chapter 01 [Chapter 1: Why Investing is the Only (Realistic) Path to Solving Climate Change](https://www.carboncollectiveinvesting.com/sustainable-investing/why-investing) × #### Fact Checked Carbon Collective partners with financial and climate experts to ensure the accuracy of our content. Our team of reviewers are established professionals with years of experience in areas of personal finance and climate. They have contributed to top tier financial publications, such as Reuters, Axios, Ag Funder News, Bloomberg, Marketwatch, Yahoo! Finance, and many others. This team of experts helps Carbon Collective maintain the highest level of accuracy and professionalism possible. × #### Why Trust Carbon Collective Carbon Collective is the first online investment advisor 100% focused on solving climate change. We believe that sustainable investing is not just an important climate solution, but a smart way to invest. We follow ethical journalism practices, which includes presenting unbiased information and citing reliable, attributed resources. Much of our research comes from leading organizations in the climate space, such as Project Drawdown and the International Energy Agency (IEA). Our goal is to deliver the most understandable and comprehensive explanations of climate and finance topics. Our writing and editorial staff are a team of experts holding advanced financial designations and have written for most major financial media publications. Our work has been directly cited by organizations including MarketWatch, Bloomberg, Axios, TechCrunch, Forbes, NerdWallet, GreenBiz, Reuters, and many others. We strive to empower readers with the most factual and reliable climate finance information possible to help them make informed decisions. ![Attend Our Next Webinar](https://www.carboncollectiveinvesting.com/hubfs/carbon-collective-green-investing-icon-webinar.12af7b6e.svg) ### Attend Our Next Webinar Join our next Sustainable Investing 101 webinar, get our favorite DIY options, and walk through how we build our portfolios. [Watch Now](https://www.carboncollective.co/sustainable-investing-webinar-green-retirement-month) ![Get Our Newsletter](https://www.carboncollectiveinvesting.com/hubfs/carbon-collective-green-investing-icon-demo.6ed28722.svg) ### Get Our Newsletter Go a level deeper with us and investigate the potential impacts of climate change on investments like your retirement account. 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A copy of Carbon Collective's current written disclosure statement discussing Carbon Collective’s business operations, services, and fees is available at the SEC’s investment adviser public information website – [www.adviserinfo.sec.gov](https://adviserinfo.sec.gov/firm/summary/310129) or [our legal documents here](https://blog.carboncollective.co/legal-documents/). The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. Carbon Collective does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Carbon Collective’s web site or incorporated herein, and takes no responsibility therefor. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. 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This is different from environmental, social, and governance (ESG) funds in that many ESG portfolios and funds still hold fossil fuel companies. For investors who care about climate, ESG often does not align with their financial and ethical standards. This is where sustainable investing comes in." }, "name" : "What is sustainable investing?" }, { "@type" : "Question", "acceptedAnswer" : { "@type" : "Answer", "text" : "To avoid catastrophic 1.5ºC warming, humanity needs to invest ~9x more into climate solutions each year. We need to research, develop, test, iterate, build, deploy, and massively scale up new technologies. And we need to deploy the existing clean technologies as fast as we can. None of this, from early-stage R&D to building the next battery gigafactory, will happen without investment to fund it." }, "name" : "Why is sustainable investing important?" }, { "@type" : "Question", "acceptedAnswer" : { "@type" : "Answer", "text" : "Put simply, the challenge of human-driven climate change can be defined by three key points:\n\n1. There is too much carbon dioxide and other greenhouse gases in our atmosphere.\n2. The insulating effect of these molecules means less of the earth’s heat reflects into space.\n3. The more heat that gets trapped, the more it changes our global systems. From directly melting ice caps to disrupting historic ocean and wind currents, boosting the intensity of storms, and the length and duration of droughts." }, "name" : "What is human-driven climate change?" }, { "@type" : "Question", "acceptedAnswer" : { "@type" : "Answer", "text" : "We can simplify the huge challenge of solving climate change into three steps:\n\n1. Stop adding excess carbon dioxide and other greenhouse gases to the atmosphere. This requires transitioning from fossil fuels to sustainable energy.\n2. Protect the remaining natural systems and start regrowing as many as we can to increase our planet’s natural carbon-carrying capacity.\n3. Mop up the excess, ancient carbon dioxide until atmospheric carbon dioxide levels have returned to pre-industrial levels." }, "name" : "How can humanity solve climate change?" }, { "@type" : "Question", "acceptedAnswer" : { "@type" : "Answer", "text" : "- It costs less to build new solar arrays than continue operating existing coal plants in most areas of the globe.\n- Campaigns to shut down coal plants and brand coal as negative for the climate and health have succeeded (like this one from the Sierra Club).\n- Even coal-reliant countries like India have explored halting any new production of coal facilities due to their inferior economic situations.\n- Coal’s significant air pollution can lead to civil unrest, particularly in economies with growing middle classes, like China and India.\n- Investors have shown a lack of confidence in the long-term potential of coal. The Dow Jones US Coal Index hit all-time lows in the summer of 2020 before Dow Jones discontinued it." }, "name" : "What data supports the transition from coal to renewable energy?" } ] } ```