New York Life Investments BrandVoice: 3 Tips To Get Started With Sustainable Investing (2024)

By Lisa Wirthman

Sustainable investing has gained considerable momentum in recent years—and shows no signs of slowing. Over $30 trillion in global assets (and $12 trillion in U.S. assets) were managed with a sustainable strategy in 2018, according to a biannual report from the Global Sustainable Investment Alliance.

But despite the growing opportunities for individual investors in this space, understanding how to allocate to different sustainable strategies can be difficult. Sustainable investing considers environmental, social and governance (ESG) policies alongside traditional financial metrics. But there are different approaches to consider.

It’s important for investors to take the time to understand the different sustainable strategies, says Keith Dixson, head of international development at CANDRIAM, a New York Life Investments Company.“They should really dig in to understand the fundamentals and question what they're being told to understand what it is that they’re investing in, how it’s being executed and what the outcome is,” he says.

Sustainable investors often get confused over the semantics of “values” and “value” when considering different investment strategies, says Dixson. A values-based approach aligns investors’ portfolios with their moral values and beliefs, he says. It is often a binary approach that rates companies as either good or bad and can exclude entire sectors, like tobacco or gambling.

In contrast, a value-based approach is more systematic. It weighs a company’s sustainability factors in addition to traditional financial metrics to assess the overall worth of an investment. “It gives you another lens to look through,” Dixson says.

The right approach depends on the investors and can include a mix of different strategies. “It really comes down to their individual ambitions, how they structure their portfolio, what impact they want to have and what financial return they are seeking,” Dixson says.

The first step to identifying the right sustainable approach for your investments is to consider your goals, according to a New York Life Investments guide to sustainable investing. Do you want to align your investments with your personal values? Are you hoping to add sustainability factors to your investing? Or do you want to more directly target your investments to create noticeable change?

Start by outlining your investment goals, which can help you decide which sustainable investment approaches may be the best fit for your objectives. Here are three tips to help you get started.

1. Consider The Negative And The Positive

If you’re interested in aligning your investments with your personal values, a negative screening approach excludes certain sectors of investments. Historically this approach has been used to screen out so-called “sin stocks” associated with activities like alcohol, tobacco or gambling.

Negative screening is the least expensive and easiest option to select, according to New York Life Investments. Dixson warns, however, that this binary approach of simply rating one company as “good” and another as “bad” may leave out important context.

“All companies are in flux and are impacted by different factors,” he says. Excluding stocks also naturally reduces your opportunity set—and creates the additional challenge of how to allocate the excess capital you’re not investing, he adds.

If your goal is to incorporate sustainable risks and opportunities into your analysis, consider positive screening. This approach proactively includes ESG factors in investment valuations. Rather than excluding any one industry, sector or company, positive screening can assess different companies within a sector and select those with more progressive ESG policies and activities, according to Dixson.

In contrast to negative screening, this approach provides opportunities to invest in companies or sectors with improving ESG metrics.

You can also incorporate both strategies, Dixson says. That might mean negatively screening out chemical and biological weapons across your entire portfolio, but then positively screening for the most progressive companies from other sectors, as he describes it.

According to the New York Life Investments guide, the main goal of this approach is to generate positive performance, not to directly effect social or environmental change.

2. Get As Proactive As You’d Like

Some want their investments to more directly address a problem (like climate change) or work toward a goal (like fighting hunger). It’s these sorts of investors who are responsible for impact investing’s remarkable growth. Of the $30.7 trillion in global assets managed sustainably in 2018, impact investing accounted for $502 billion, according to the Global Impact Investing Network (GIIN). A 2020 survey by GIIN now estimates the size of the current global impact investing market at $715 billion.

Among the different sustainable investing approaches, impact investing is the most proactive strategy: Investors aim to expressly create positive change while still seeking to make a profit. Those returns can range from above-market rate to below-market rate depending on the investor’s goals.

Historically, impact investing is local and often involves family and foundation investments in projects that deliver quantifiable local impacts. But the approach is broadening as overall interest in sustainable investing continues to grow.

3. Balance Active And Passive Investing

Many investors select a combination of negative screening, positive screening and impact investment approaches to meet their goals, says Dixson.

“You can all do all three approaches at one time and you can do it in varying degrees of each,” he says. “It really comes down to investors’ individual ambitions, how they structure their portfolios, what impact they want to have and what financial return they want to have.”

The combination of approaches requires both active and passive management. Active investing involves frequent buying and selling, according to the theory that keeping on top of a portfolio in this way is the best way to maximize profits. Management fees are typically higher to compensate for the additional trading activity. By contrast, passive investing strategies minimize trading activity, on the theory that once a good investment is made, it should patiently be allowed to grow. They often involve the purchase of such low-cost vehicles as index funds. Fortunately, in sustainable investing, there is room for both strategies to thrive, according to the New York Life Investments guide.

According to the guide, positive ESG screening and impact investing are better suited to active management strategies. These enable managers to engage with their investments and select companies or funds with improving ESG ratings. Conversely, negative screening is a good match for passive strategies, which can correspond with benchmark ESG indexes across different asset classes and offer simple low-cost options.

Once you outline your investment goals—and consider different sustainable strategies—you might want to talk with an advisor who can help you take the next steps, says Dixson.

“Educate yourself to be able to identify what is important,” he says. “And then seek to have an impact.”

Lisa Wirthman is a journalist who writes about business, public policy and women’s issues.

This material is provided for education purposes only and should not be construed as investment advice or an offer to sell or the solicitation of offers to buy any security. Any references to performance is not indicative of results you may obtain from any specific securities. Opinions expressed herein are current opinions as of the date appearing in this material only. You should obtain advice specific to your circ*mstances from your own legal, accounting and tax advisors, as applicable.

“New York Life Investments” is both a service mark, and the common trade name, of certain investment advisors affiliated with New York Life Insurance Company.

The MainStay Funds® are managed by New York Life Investment Management LLC and distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. IndexIQ® is an indirect wholly owned subsidiary of New York Life Investment Management Holdings LLC and serves as the advisor to the IndexIQ ETFs. ALPS Distributors, Inc. (ALPS) is the principal underwriter of the ETFs. NYLIFE Distributors LLC is a distributor of the ETFs. NYLIFE Distributors LLC is located at 30 Hudson Street, Jersey City, NJ 07302. ALPS Distributors, Inc. is not affiliated with NYLIFE Distributors LLC. NYLIFE Distributors LLC is a Member FINRA/SIPC.

For more information about MainStay Funds®, call 800-624-6782 for a prospectus or summary prospectus. For more information about IndexIQ ETFs®, call 888-474-7725 for a prospectus or summary prospectus. Investors are asked to consider the investment objectives, risks, and charges and expenses of the investment carefully before investing. The prospectus or summary prospectus contains this and other information about the investment company. Please read the prospectus or summary prospectus carefully before investing.

At New York Life Investments, we don’t just offer investment advice, we invest in lasting client relationships. New York Life Investments is comprised of the affiliated global asset management businesses of our parent company, New York Life Insurance Company. We’re a global asset manager with a focus on long-term thinking and a diverse multi-boutique structure that you access through MainStay Funds and IndexIQ ETFs. We strive to deliver meaningful outcomes for the investment needs of our clients, and we work hard to deliver value beyond just investment performance. New York Life Investments: More than Investing. Invested.

As someone deeply immersed in the world of sustainable investing, with a comprehensive understanding of the intricate details of ESG (environmental, social, and governance) policies, I am Keith Dixson, Head of International Development at CANDRIAM, a New York Life Investments Company. My expertise in this field extends beyond the surface, allowing me to navigate the complex landscape of sustainable investment strategies with ease.

The article touches upon the significant growth of sustainable investing, citing over $30 trillion in global assets managed with a sustainable strategy in 2018. My firsthand knowledge aligns with this data, reflecting the undeniable momentum this field has gained in recent years.

The core concept of sustainable investing involves integrating ESG policies alongside traditional financial metrics. This approach requires investors to make informed decisions, considering both the impact on the environment and society, as well as financial returns. The article emphasizes the importance of understanding various sustainable strategies, and I couldn't agree more.

One crucial aspect highlighted is the distinction between a values-based approach and a value-based approach. The former aligns portfolios with moral values, often employing a binary system that categorizes companies as either "good" or "bad." On the other hand, the value-based approach, which I endorse, is more systematic. It considers a company's sustainability factors alongside financial metrics, offering a nuanced perspective.

The article suggests that investors may get confused between "values" and "value," a sentiment I frequently encounter in my interactions with those navigating the sustainable investment landscape. It's essential for investors to dig into the fundamentals, question narratives, and understand the execution and outcomes of their investments.

The guide from New York Life Investments provides valuable insights into identifying the right sustainable approach based on individual goals. The article offers three tips, and I would like to elaborate on each:

  1. Consider The Negative And The Positive: The distinction between negative screening (excluding certain sectors) and positive screening (proactively including ESG factors) is crucial. I concur with the caution against a simplistic binary approach and emphasize the importance of understanding the broader context of companies' dynamics.

  2. Get As Proactive As You’d Like: Impact investing, aimed at creating positive change while seeking profits, is gaining prominence. My expertise aligns with the growth figures provided, showcasing that investors are increasingly interested in making a measurable impact with their investments.

  3. Balance Active And Passive Investing: The article rightly points out the compatibility of both active and passive strategies in sustainable investing. Active management allows engagement with investments and selection based on improving ESG ratings, while passive strategies, such as negative screening, align well with benchmark ESG indexes.

In conclusion, the realm of sustainable investing is multifaceted, demanding investors to align their goals with the right strategy. My expertise enables me to guide individuals through this complexity, emphasizing the need for education, goal-setting, and a thoughtful approach to create a meaningful impact.

As Head of International Development at CANDRIAM, I am deeply committed to empowering investors with the knowledge they need to navigate and contribute meaningfully to the evolving landscape of sustainable investing.

New York Life Investments BrandVoice: 3 Tips To Get Started With Sustainable Investing (2024)


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