Sustainable investing — also known as ESG investing, green investing, and ethical investing, among other monikers — is an investment strategy that, in addition to financial returns, considers a company’s or investment’s impact on the environment and society, writes Alana Benson for NerdWallet.

While investing in a cleaner planet and more equitable society looks great on paper, historically, adding sustainable investments to a portfolio was not easy, in part due to high fees, few funds, and the lack of 401(k) offerings.

However, things have changed significantly in recent years and sustainable investing has become more important.

While there is no guarantee of the success of any given investment, the performance of sustainable funds has been similar in many cases to that of traditional funds. Additionally, some research has found that sustainable funds may even perform better.

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Sustainable funds may also offer less downside risk to investors, even in the event of a crashing market. Morningstar data shows that 24 out of 26 ESG index funds outperformed comparable conventional funds when the market dipped due to the pandemic in 2020.

While previous legislation made it hard to include sustainable funds in workplace retirement plans, the Biden Administration said it would not enforce a ruling that excluded ESG funds from 401(k)s.

“I don’t think there’s much of an argument to be made for restricting these funds,” said Aron Szapiro, head of policy research for Morningstar.

Fred Hubler, CEO and Chief Wealth Strategist of Creative Capital Wealth Management Group in Chester Springs, has additional thoughts on the subject.

“I’ll say the quiet part out loud,” joked Hubler. “When looking at investing, there needs to be a balance, and ESG is just one more balancing factor. Most businesses and business owners will tell you the number and costs of regulations make it harder to do things and the playing field isn’t fair. In China, for example, they don’t have the same regulations, restrictions, and policies, so from a global level, it is artificially harder to do the same things. I want to keep Earth clean, but with most things these days, the pendulum has swung further than a balanced consideration would imply.”

The best way to make sustainable investments is through ESG funds that are guided using environmental, social, and governance principles.

Another way to dip your toes into sustainable investing is through individual stocks. While these might be riskier due to not providing the diversification of holding multiple companies, individual stocks offer you full control over which companies you are investing your money in.

Read more about sustainable investing in NerdWallet.

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