Sustainable investing: Adding values to your portfolio

By Paul Hilton, CFA

Can investment portfolios reflect more than just returns? For many investors, social or environmental impact is just as important as monetary gain.

What is sustainable investing?

Sustainable investing is an investment strategy that integrates environmental, social, and governance (ESG) considerations alongside traditional financial analysis. Rather than focusing solely on financial returns, a sustainable investing portfolio is constructed to reflect the values, priorities, and impact goals of the investor.

The term “sustainable investing” is an umbrella that encompasses several related approaches, including ESG investing, socially responsible investing (SRI), impact investing, and thematic investing in areas such as clean energy or sustainable agriculture. While these approaches differ in method and emphasis, they share a common thread: a belief that how capital is deployed matters.

Why sustainable investing Is important

The case for sustainable investing has never been stronger. Recent surveys conducted by the Morgan Stanley Institute for Sustainable Investing found that 88% of global individual investors express interest in sustainable investing, with younger generations showing the greatest enthusiasm which is a signal that sustainability will become an even stronger investment focus as their financial influence grows.

Beyond demand, the financial rationale is equally compelling. Companies with strong ESG practices tend to be better managed, carry lower regulatory and reputational risk, and are better positioned for long-term value creation. Investing in ESG-oriented companies can help mitigate risks associated with firms that may face regulatory penalties or reputational damage due to poor ESG practices, which can translate into better performance over the long term.
There is also the matter of scale. Despite political pressures, sustainable assets in the US rose to $6.6 trillion in 2025 and 86% of asset owners globally expect to increase their allocations to sustainable investments in the coming two years. This is no longer a niche strategy; it is a structural shift in how capital markets operate.

On the environmental front, urgency continues to mount. As the physical impacts of climate change become more apparent, the urgency to act is increasing and while the transition to a low-carbon economy faces some political and regulatory headwinds, the technological and societal shifts underlying it will persist and continue to demand investor attention.

Why choose sustainable investing?

Sustainable investing is a strategy that integrates environmental and social concerns into the investment selection process. There are three primary motivations for pursuing sustainable investing:

• Values

• Impact

• Performance

Investors may be inspired by one or multiple motivations, but the primary motivation may influence the specific type of sustainable investment approach they choose to pursue.

Values-Focused Investing

Values-focused investing is one of the oldest forms of sustainable investing, rooted in the socially responsible investing (SRI) tradition. Today, the most common exclusions applied by sustainable investors remain controversial.

For example, a values-focused investor may primarily be concerned about avoiding investments in company stocks that violate their conscience (such as weapons, tobacco, or oil companies). For this investor, an exclusionary approach might be most suitable—where specific companies are screened out of a portfolio based on their business involvement.

Impact-Focused Investing

An impact-focused investor may instead look to direct capital to underserved communities through a community development loan fund, helping individuals who lack access to traditional credit options start small businesses or obtain home loans. An impact investor might also be interested in supporting green bonds that direct capital to climate change related investments—such as electrifying an urban bus transit system.

Green bonds are a particularly powerful tool for impact-minded investors, financing projects like renewable energy, green buildings, and low-carbon transport while offering similar risk profiles to conventional bonds. The green, social, sustainability, and sustainability-linked bond market now exceeds $6 trillion globally.

Performance-Focused Investing

A performance-focused investor may look to proactively invest in sustainability themes, such as renewable energy or sustainable foods. For example, companies focused on producing sustainable and healthier foods may be better long-term investments because they will have potentially higher sales due to the increased consumer focus on healthier food options. Investors with this focus may also seek to invest in companies with good overall environmental, social, and governance (ESG) records because they believe these are better managed companies with lower risk.

These investors would prefer not to own companies with major headline risks associated with corporate governance scandals or a history of producing unsafe products. For these investors, good management of ESG risks and opportunities is just good business—an approach that should be rewarded in time.

Sustainable investment strategies: a summary

Strategy	Description	Best for
Exclusionary screening (SRI)	Removes companies in objectionable industries	Values-focused investors
ESG integration	Incorporates ESG data into financial analysis	Performance-focused investors
Impact investing	Directs capital to measurable social/environmental outcomes	Impact-focused investors
Thematic investing	Focuses on sustainability sectors, e.g. clean energy	Performance and impact investors
Green bonds	Fixed income funding environmental projects	Impact and income-oriented investors
Community development finance	Loans and investments in underserved communities	Community and impact investors

Growth and demand for sustainable investing

Over the last 20 years we have seen a major increase in demand for investment products that employ one or more of these sustainable investing approaches. It is now possible to create well diversified portfolios, with exposure to sustainable investments across all asset classes (cash, equities, fixed income, and alternatives). These portfolios can provide risk adjusted returns similar to traditional portfolios, but with the added benefit of an impact or sustainability objective.

It is now possible to build a fully diversified sustainable investing portfolio across all major asset classes, including cash, equities, fixed income, and alternatives, while targeting risk-adjusted returns comparable to traditional portfolios.

A well-built sustainable portfolio balances values with diversification. This means defining your priorities clearly, researching investments using ESG rating tools, and selecting a mix of mutual funds, exchange-traded funds (ETFs), and individual equities that collectively reflect your goals. Key considerations include sector concentration, fund overlap, and reviewing complete holdings to avoid misalignment with your values.

Companies that embrace sustainability

Some public companies have not only welcomed the shift toward sustainability, but have also implemented strategies to attract this investor demographic:

• Next Era Energy—Next Era Energy is an electric utility company that is a national leader in the production and distribution of renewable energy, with 55% of its operating portfolio tied to renewables.

• Quanta Services—Quanta Services is one of the largest infrastructure construction companies, positioned to benefit as utilities push to improve electric transmission and distribution in the US, which is essential given the age of most transmission lines.

• Unilever—Unilever is a global consumer company that produces some of the biggest food and personal care brands, such as Dove soap and Hellman’s mayonnaise. The company has a focus on sustainable agriculture, with a goal of sourcing 95% volume of key crops to be verified as sustainably sourced by 2030.

Our team at Nixon Peabody Trust Company has decades of experience creating sustainability focused investment portfolios for clients. We can help you design a customized portfolio with exposure to the specific sustainability approach that matches your specific motivations and provides benefits beyond the bottom line.

FAQs about sustainable investing

What is the difference between ESG investing and sustainable investing?

“Sustainable investing” is a broad umbrella term covering any strategy that incorporates environmental, social, or governance considerations. ESG investing is a specific methodology within that umbrella, using structured ESG data to evaluate and select investments. Other approaches include socially responsible investing (SRI), impact investing, and thematic investing focused on areas like clean energy or sustainable agriculture.

Does sustainable investing sacrifice returns?

Not necessarily. Well-constructed sustainable investing portfolios can deliver risk-adjusted returns comparable to traditional portfolios. Clean-energy stocks outperformed both technology and oil in 2025, and 86% of global asset owners expect to increase their sustainable investment allocations, suggesting strong institutional conviction in the long-term return case.

What is greenwashing and how can I avoid it?

Greenwashing occurs when a company or fund overstates its environmental or social credentials. To protect yourself: use multiple independent ESG rating sources, read fund prospectuses and sustainability reports directly, look for third-party verification and alignment with frameworks like the UN Sustainable Development Goals, and scrutinize actual holdings rather than relying on fund names or marketing materials alone.

What types of investments can be included in a sustainable portfolio?

A sustainable investing portfolio can span all major asset classes, including equities, fixed income (such as green bonds and sustainability-linked bonds), cash, and alternatives. Within equities, options include individual stocks, ESG-screened mutual funds, and ESG ETFs. This breadth means it is possible to build a fully diversified sustainable portfolio without limiting yourself to a single asset class or sector.

How do I get started with sustainable investing?

Start by identifying which sustainability issues matter most to you, whether that is climate change, human rights, corporate governance, or community development. Then clarify your financial objectives, including risk tolerance and time horizon. From there, research investment vehicles that match your values, consulting ESG rating tools and fund prospectuses. Working with an experienced advisor who specializes in sustainable portfolio construction can help you design a customized approach.

Is sustainable investing only for large or institutional investors?

No. Sustainable investing is accessible to investors at all levels. ESG-screened mutual funds and ETFs are available through most major brokerages and are often available within employer-sponsored 401(k) plans and IRAs. For those seeking direct impact, community development loan funds and green bond instruments are increasingly available through financial advisors and specialized platforms.

Paul Hilton, CFA
Equity Research Director
+1 617.345.1066
philton@nixonpeabody.com