The Definitive Guide To Sustainable Investing

PART 1 - INTRODUCTION

This guide to sustainable investing is Bankeronwheels.com’s exclusive deep dive into Sustainable Investing.

Sustainable Investing is trendy. But let’s face it, hardly anyone understands the topic. 

The vast majority of institutional investors and even some academics don’t understand the nuances either.

Unsurprisingly, you probably haven’t found any comprehensive guide on this topic that didn’t create even greater confusion. 

So here is where we step in.

Our readers kept asking, so we went on a few-month journey to understand what was happening behind the scenes.

We also bust two myths around ESG. What may surprise you is that:

  • ESG Ratings in most Equity ETFs are not designed to protect the planet
  • ESG ETFs will, in the long run, inevitably underperform
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Beginners often ask us:

  • How do I reach my goals  What investments do I need to take into consideration when e.g. Taking a Sabbaticalbuying a House or saving for Early Retirement?
  • When should I invest – I fear that investing a lump sum in this market may have a negative impact on my returns. How can timing of buying ETFs affect my performance?

Advanced investors may avoid costly mistakes:

  • Challenge my Portfolio – Here is my portfolio – what am I missing? What could derail my strategy?  What can I do to protect my portfolio from shocks?
  • Help me quickly understand – What makes Inflation Linked Bonds outperform? Bond Ladder or Bond ETFs? Why do some investors add Small Cap Value stocks to their portfolios? How can I exclude Tobacco companies from my portfolio? Are the synthetic ETFs I screened safe?  What is Factor Investing?
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Beginners often ask us:

  • How do I reach my goals  What investments do I need to take into consideration when e.g. Taking a Sabbatical, buying a House or saving for Early Retirement?
  • When should I invest – I fear that investing a lump sum in this market may have a negative impact on my returns. How can timing of buying ETFs affect my performance?

Advanced investors may avoid costly mistakes:

  • Challenge my Portfolio – Here is my portfolio – what am I missing? What could derail my strategy?  What can I do to protect my portfolio from shocks?
  • Help me quickly understand – What makes Inflation Linked Bonds outperform? Bond Ladder or Bond ETFs? Why do some investors add Small Cap Value stocks to their portfolios? How can I exclude Tobacco companies from my portfolio? Are the synthetic ETFs I screened safe?  What is Factor Investing?
Currently available in English, French and Polish.
 

Our Introductory Price Levels will end soon. Book your session before new prices apply.

By signing up for a financial coaching session you support our website and our investment research. Here are other ways to help.

How to use this guide

Why is our guide Different?

To our knowledge, this is a unique guide on the web that addresses Sustainable Investing taking into account the financial nature of ESG Ratings, that today is absent from the ESG debate. 

Understanding ESG Ratings’ flaws significantly impacts investment decisions. 

  • This guide takes the political aspect of ESG out of the analysis.
  • It focuses only on the investment and planet impact aspects.
  • We went through hundreds of academic papers to remove the noise and only provide you with the signals.

Target Audience

This guide can benefit Bankeronwheels.com’s three core audiences. 

We highlight what sections you may find particularly helpful, depending on your profile:

how to build an investment portfolio option 1
THE GOLDEN RETRIEVER
THE CYCLIST
how to build an investment portfolio option 3
THE BANKER
  • The Golden Retriever, aka Wise Passive Investor –  A hands-off Investor, typically using a single ETF, may benefit from understanding what it means to have a World ETF with ESG characteristics and whether it’s worth it. Perhaps our insights about the ways to make the planet a better place can help, too.
  • The Cyclist, aka Semi-Passive DIY Investor –  A DIY Investor willing to customise her portfolio can probably benefit the most from our SRI & ESG Investing Sections. Understanding how to incorporate ethical value screens while avoiding ESG traps and what’s really inside an ESG ETF may provide a great starting point.  We also cover the price for excluding sin stocks from a portfolio. 
  • The Banker, aka Evidence-Based Investor – For Advanced Investors, the future of Sustainable Ratings can also provide an introduction to materiality maps, the landscape of financial, impact and double-materiality scores or taxonomy resources to leverage for all asset classes, including private debt. 
how to build an investment portfolio option 1
THE GOLDEN RETRIEVER

The Golden Retriever, aka Wise Passive Investor –  A hands-off Investor, typically using a single ETF, may benefit from understanding what it means to have a World ETF with ESG characteristics and whether it’s worth it. Our insights about the ways to make the planet a better place can help, too.

THE CYCLIST

The Cyclist, aka Semi-Passive DIY Investor –  A DIY Investor willing to customize her portfolio can probably benefit the most from our SRI Investing Sections. Understanding how to incorporate ethical value screens while avoiding ESG traps and what’s really inside popular Sustainable ETFs may provide a great starting point.  We also cover the price for excluding sin stocks from a portfolio. 

how to build an investment portfolio option 3
THE BANKER

The Banker, aka Evidence-Based Investor – For Advanced Investors, the future of Sustainable Ratings can also provide an introduction to materiality maps, the landscape of financial, impact and double-materiality scores or taxonomy resources to leverage for all asset classes, including private debt. 

What's in thIS Guide?

Table of Content (Click on the Title Below)

You are reading this introduction. 

This article is golden-retriever (beginner) friendly. 

We start the guide with the most shocking truth. ESG Ratings in most Equity ETFs are almost the exact opposite of what you think they are. 

This article is golden-retriever (beginner) friendly. It is one of the 3 highlights of the series.

When investors mention Sustainable Investing, confusion and relativism reign. That’s because hardly anyone uses a consistent framework of thinking about this topic. We created our own, inspired by the most authoritative academic research.

Here is how to apply our B.S. Meter to ETF Selection. Pure SRI Funds are the most intuitive choice for an Investor willing to exclude investments based on moral grounds. Filtering out ESG Ratings from your portfolio can avoid giving undue influence to index providers. 

We look at what investments you will be exposed to when investing in a Sustainable ETF. Funds based on ESG Ratings are composed of companies you wouldn’t suspect. SRI is more intuitive. But when buying an ETF, you need to pay special attention because ETF providers want you to be confused about the funds’ names, too. 

Over the past few years, Sustainable investments have, sometimes significantly, outperformed. Is it only driven by risk factors? Will this outperformance last?

This article is one of the 3 highlights of the series.

Despite the expected underperformance, some investors may still want to express their Sustainability views in their portfolios. How can you have an impact on the planet? We look at three ways to invest sustainably. 

This article is golden-retriever-friendly. It is one of the 3 highlights of the series.

8. Light at the end of Tunnel? The Future of Sustainable Ratings [Release Date: Feb 10th]

For Private Investors, MSCI or Morningstar’s Sustainalytics Ratings matter the most. But Professional Investors have other tools at their disposal. We look at what’s available and what the future may bring. 

This article is only for advanced investors.

9. Sustainable Investing - FAQ [Release Date: Feb 17th]

We summarize our series by responding to your frequently asked questions. 

FROM OUR TEAM
Help Us Create Great Resources

This website was created to provide you with all necessary resources to invest without incurring any additional costs.

Servers, data, and software are some of our costs, just to name a few.  Most importantly, our time is the main resource to create great content. If you find that our guides helped you on the path to financial success, you may give us a hand by buying a coffee.

By buying us a coffee you support our website and our investment research. Here are other ways to help.

FROM OUR TEAM
Help Us Create Highest Quality Resources

This website was created to provide you with all necessary resources to invest without incurring any additional costs.

Servers, data, and software are some of our costs, just to name a few.  Most importantly, our time is the main resource to create great content. If you find that our guides helped you on the path to financial success, you may give us a hand by buying a coffee.

By buying us a coffee you support our website and our investment research. Here are other ways to help.

Sources and limitations

Academica and Our Professional Experience

We relied on two sources:

  • Our Professional experience – is related to how Institutional Investors approach Sustainable Investing. In particular, our investigation into rating materialities. 
  • Academic research – helped shed light on the performance of ESG Funds. We have reviewed dozens of academic papers. Part 6 of our guide uses some references from Larry Swedroe and Samuel Adams that compiled academic papers in their book –  Your Essential Guide to Sustainable Investing: How to live your values and achieve your financial goals with ESG, SRI, and Impact Investing.
Another caveat to our work is that Sustainability has only a couple of decades of data and is an evolving field. 
 

Why BlackRock and Vanguard

For our benchmark and ETF selection articles, we have prioritised the largest managers:

  • BlackRock – given (i) its declared strategic focus on Sustainability and (ii) the fact that it manages 6 out of 10 of the largest Sustainable ETFs.
  • Vanguard – given that it’s a popular choice amongst individual investors.

Vanguard

iShares

  • What is iShares MSCI World ESG Enhanced UCITS ETF?
  • What is iShares MSCI USA SRI UCITS ETF?
  • What is iShares MSCI USA ESG Enhanced UCITS ETF? [Coming Shortly]
  • What is iShares MSCI Europe SRI UCITS ETF? [Coming Shortly]
  • What is iShares MSCI USA ESG Screened UCITS ETF? [Coming Shortly]
  • What is iShares MSCI EM SRI UCITS ETF? [Coming Shortly]
  • What is iShares MSCI EM IMI ESG Screened UCITS ETF? [Coming Shortly]
  • What is iShares ESG MSCI USA Leaders ETF? [Coming Shortly]
  • iShares ESG Aware MSCI USA ETF [Coming Shortly]
  • What is iShares Global Clean Energy ETF? [Coming Shortly]
  • What is iShares ESG Advanced MSCI USA ETF? [Coming Shortly]
  • What is iShares ESG Advanced MSCI EAFE ETF? [Coming Shortly]
  • What is iShares ESG Advanced MSCI EM ETF? [Coming Shortly]

Other Providers

  • What is Xtrackers MSCI USA ESG UCITS ETF? [Coming Shortly]
  • What is AMUNDI S&P 500 ESG UCITS ETF? [Coming Shortly]
  • What is Invesco Water Resources ETF? [Coming Shortly]

But remember, our framework of thinking and conclusions can be applied to any sustainable fund.

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