Investing in sustainable companies is an excellent way to protect your money and the planet. However, many investors are not aware of the many benefits of sustainable investing. There are several risks to avoid when investing in these companies. Here are some of them:
The first risk involves the stock price. If the company is not profitable, you may lose your money in the short run. It will also hurt the company’s reputation, and its employees may be demoralized. Secondly, it is not easy to measure the impact of investments on the environment, but research shows that investing in companies that are focused on this area is the best way to protect your money. Sustainable ETFs can reduce your risk by eliminating bad companies and reweighting your portfolio so that companies that damage the environment receive a lower allocation. This extra 0.5-1% expense ratio can add up to hundreds of thousands of dollars over the long term.
Another risk is the lack of transparency in sustainable company disclosures. In addition to transparency, sustainable companies must be able to dominate large portions of their industry. This means that they are more likely to make an impact on the world than non-sustainable companies. It’s also best to invest in smaller companies, as they are more likely to have a sustainable track record. And as a general rule, smaller companies often offer higher growth potential and greater value.