Sustainable investing is an investing philosophy wherein an investor takes a company’s environmental, social, and corporate governance (ESG) factors into account. This allows investment dollars to be used as a tool to promote positive societal impact and corporate responsibility without sacrificing long-term financial returns. Strategies for investing sustainably include avoiding companies that conflict with ESG principles and seeking out industries that are inherently more sustainable.

Following the environmental, social, and corporate governance (ESG) framework, there are a wide variety of investments that can be considered “sustainable.” Industries that promote good environmental practices, via more renewable energy sources or by combating air and water pollution, are perhaps the first things that come to mind for most people. However, sustainable investing can also include investing in companies that support human rights initiatives or a more ethical corporate culture.

For someone to invest ethically, they must use their ethical principles as the primary filter when selecting companies to invest in. What makes this different from green or ESG investing, each of which typically have an overarching set of guidelines, is that the criteria that make a company “ethical” can differ from one investor to another. For example, two investors who both value clean energy companies may disagree on whether or not nuclear energy qualifies as a “clean” source.

A 2019 study of 11,000 mutual funds conducted by the Morgan Stanley Institute for Sustainable Investing found that there was no financial trade-off in the returns of sustainable funds compared to their more traditional counterparts. Additionally, regardless of the asset class held, sustainable funds also showed a significantly lower downside risk. Finally, during periods of high market volatility, sustainable funds generally proved to be more stable investments.