Hello, Sustainable Investing! Please Meet Ecoanxiety.
Generation X and the Millennials gave me a big surprise. I've met with several in the Gen X and Millennial cohort recently to talk about their investments and asked if they have heard about Socially Responsible Investing or Environmental, Social, and Governance (ESG) investing. To my honest surprise, a large majority did not know what either was. Some had heard the terms, but they didn't really know what they meant. What didn't surprise me was that they were all eager to learn more about it. For that reason, Gen X and Y—and all other generations, for that matter—I encourage you to keep reading to learn about sustainable investing.
For those of you who already know about sustainable investing, have you heard about ecoanxiety? Keep reading.
Photo by Ron Lach
What is Sustainable Investing?
Sustainable investing is any type of investing that takes into account the impact of an investment along with its financial return. The idea is that investors can use their money to drive social change and make a positive impact in the world while earning a return on their investment. Sustainable investing goes by many names; the most widely used terms include Socially Responsible Investing (SRI), Environmental, Social, and Governance (ESG) investing, and Impact Investing:
Socially Responsible Investing (SRI) is an investment strategy that may avoid investments in companies that engage in activities that are seen as harmful or controversial, like the production of fossil fuels, weapons, or tobacco. Additionally, it may involve proactively investing in companies that meet certain environmental, social, and governance criteria.
Environmental, Social, and Governance, or ESG investing, is the concept of making investment decisions that take into account environmental, social, and governance factors like climate change, human rights, executive compensation, board diversity, and labor practices.
Impact Investing has many of the same themes as SRI and ESG. However, an impact investment is focused on achieving a specific goal related to a cause like clean energy, education, or microfinance. An example might be to invest directly in a wind power plant.
What Are the Benefits of Sustainable Investing?
There are several answers to the question of why someone might choose to invest in a sustainable manner. Here are a few:
Align Your Investments with Your Personal Values: Investing in companies committed to sustainable practices and ethical business conduct may allow an investor to feel comfort and pride in the idea that they are supporting a good cause while earning financial returns. Consider, for example, someone passionate about climate change investing in renewable energy companies to support the transition to a low-carbon economy.
Promote Positive Change: Investors can support businesses that make positive changes in important areas like social justice, human rights, environmental sustainability, and corporate governance. In contrast, your investment dollars will not go to companies that are either taking no action in these regards or proactively doing the opposite.
Risk Reduction: Sustainable investing may give investors the opportunity to avoid companies that operate in a way that puts them in a risky position as it relates to their corporate reputation or financial performance. For example, companies with poor labor practices may have to pay fines or face legal action, which could hurt their profits and the return on investment.
Encourage Responsible Business Conduct: If investor dollars are rewarding companies that prioritize sustainability, that may make them stronger in the long term, and it may signal to competitors that a focus on sustainability factors is important for their own success.
In my opinion, the acceptance and growth of sustainable investing have been wonderful developments. It is understood that investors invest to grow their money and reach financial goals. Now, with sustainable investing options, the added benefit is that they can make a positive impact on the planet in many ways, including environmentally, socially, in corporate governance, and so on. In making that macro-level impact, investors will likely also benefit from the resulting feeling of personal satisfaction. Adopters of sustainable investing can feel like they are making a difference, perhaps a small one, but they are making a positive difference with their money. That sense and feeling of personal positive impact makes me wonder if sustainable investing is also an answer for those dealing with ecoanxiety.
What is Ecoanxiety?
Ecoanxiety, also called ecological grief, climate anxiety, or climate grief, is a feeling of stress, fear, and hopelessness caused by an overwhelming awareness of the environmental crises we face today, such as climate change, loss of biodiversity, and pollution.
The American Psychological Association explains ecoanxiety as "'a chronic fear of environmental doom’, ranging from mild stress to clinical disorders like depression, anxiety, post-traumatic stress disorder and suicide, and maladaptive coping strategies such as intimate partner violence and substance misuse."
The Handbook of Climate Psychology offers that ecoanxiety is a “heightened emotional, mental or somatic distress in response to dangerous changes in the climate system.” Additionally, the examples of ecoanxiety symptoms given include "panic attacks, loss of appetite, irritability, weakness, and sleeplessness." Research suggests the feelings of ecoanxiety are felt strongest by "the young, by first responders to climate-related natural disasters and climate scientists and activists." A 2022 Yale survey titled Climate Change in the American Mind revealed that a "majority of Americans (64%) say they are at least 'somewhat worried' about global warming. This includes 27% of Americans who are 'very worried' about global warming."
Ecoanxiety and Sustainable Investing
If you are experiencing ecoanxiety it can feel like a monumental challenge to resolve the problem. You might feel powerless in the face of large, global issues. Popular suggestions for dealing with ecoanxiety include therapy, community involvement, and focusing on reducing your own environmental impact. And likely, it will take a combination of activities to help alleviate ecoanxiety. One idea for dealing with ecoanxiety may be to adopt a sustainable investing strategy.
I'm assuming that the growth in popularity of sustainable investing is tied, in part, to investors desire to make a difference with their investment dollars. Most likely, some of these investors are dealing with varying degrees of ecoanxiety. My concern is that people don't know what sustainable investing is, as I've experienced in my own interactions; they also don't know what ecoanxiety is, even though they may have it; and finally, sustainable investing hasn't been introduced as one way to cope with ecoanxiety.
I want to make it clear that I'm not suggesting sustainable investing is a cure-all for ecoanxiety. In the face of global problems, like the environment, I think it's important to think about how doing little things individually may contribute to the greater good. If more people are working towards the same resolution, the greater the impact will be. If you accept that sustainable investing allows an individual to invest in alignment with their personal values and promote positive change, that investors will invest in companies, and that sustainable investing will provide a feeling of comfort and personal satisfaction, it seems to me like we have another option to deal with ecoanxiety in the form of sustainable investing.
My hope is that you read this and take away a better understanding of the concepts of sustainable investing and ecoanxiety and how sustainable investing might help manage ecoanxiety. If you are dealing with ecoanxiety and it is impacting your life in a significant way, it might be time to speak with a therapist. If you are dealing with ecoanxiety, it might also be time to speak with a financial planner about incorporating sustainable investing into your own portfolio.
My name is Tim Melia, and I am a CERTIFIED FINANCIAL PLANNER™ Professional. I would be happy to answer any questions you may have or discuss how this topic impacts your life and financial goals. Feel free to email me at tim.melia@emboldenfp.com. If you would like to learn more about working with Embolden Financial Planning LLC, please schedule a free, virtual introductory meeting.
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References
"What Is Sustainable Investing? - NerdWallet." NerdWallet, www.nerdwallet.com/article/investing/sustainable-investing. Accessed 25 Mar. 2023.
"Explaining the Differences Between ESG, SRI and Impact Investing." Investopedia, 28 Nov. 2022, www.investopedia.com/financial-advisor/esg-sri-impact-investing-explaining-difference-clients.
@Kiplinger. "SRI Vs. ESG Vs. Impact Investing: What’s the Difference?" Kiplinger.com, 18 Aug. 2020, www.kiplinger.com/investing/601240/sri-vs-esg-vs-impact-investing.
"Impact Investing Explained: Definition, Types, and Examples." Investopedia, 20 July 2022, www.investopedia.com/terms/i/impact-investing.asp.
Dodds, Joseph. "The Psychology of Climate Anxiety." PubMed Central (PMC), www.ncbi.nlm.nih.gov/pmc/articles/PMC8499625. Accessed 18 Mar. 2023.
Leiserowitz, A., Maibach, E., Rosenthal, S., Kotcher, J., Carman, J., Verner, M., Lee, S., Ballew, M., Uppalapati, S., Campbell, E., Myers, T., Goldberg, M., & Marlon, J. (2023). Climate Change in the American Mind: Beliefs & Attitudes, December 2022. Yale University and George Mason University. New Haven, CT: Yale Program on Climate Change Communication
