Free Resources on Sustainable Investing from SustainFi

This is a Q&A with Lana, founder of SustainFi.

‍

Estimated reading time: 8 mins

‍

Here's a little about Lana.

‍

I’ve been working in investment management in New York since graduating from Harvard Business School in 2012. A few years ago, I realized that climate change was having a huge impact on some of our investments. I decided to invest my own money in sustainable businesses and learned about environmental, social, and governance (ESG) investing. Despite my background, I found ESG investing very confusing and realized that other people might have the same issue. So, in 2021, I founded SustainFi, which is a personal finance platform that helps match people who want to invest sustainably with the right products and services.

1. Tell us about SustainFi and why you decided to tackle sustainable wealth management.
   
   Many people are interested in sustainability, and that impacts their everyday purchases. Yet very often, they forget that how they invest their money may have an even bigger impact.
   
   Investing can be very intimidating and confusing, and many people either day-trade crypto or don’t do anything at all. Their 401k plan is by default invested in mutual funds that support causes they may not believe in.
   
   For example, if someone is concerned about climate change, they get a Tesla or install solar panels, but they don’t realize that a material chunk of their savings is in oil and gas companies.
   
   I started SustainFi to educate investors about the different choices they have when it comes to sustainable investing. Environmental, social, and governance (ESG) investing is brand new and confusing, yet there was no resource to help people navigate it. I found tons of general resources for picking the right credit card or choosing stocks and funds, but none of them focused on ESG.
   
   ‍
2. What informed your approach to building SustainFi?
   
   I wanted to start as a content platform and not build a financial product like a fund or a sustainable investing app. The problem is that there are already many ESG investing products out there, but nobody really knows what’s in them and how they invest. Many popular robo-advisors like Betterment and Ellevest launched impact investing options, and there are new apps like Newday and even crowdfunding platforms for clean energy.
   
   However, I found that some supposedly “sustainable” investments aren’t that different from conventional ones but cost more. So my goal with SustainFi was, first and foremost, to help investors understand what they are buying.
   
   ‍
3. Many people see sustainability as a trade-off with profit. Do you think this is true? What are some misconceptions and truths about sustainable investing?
   
   I don’t think there is a trade-off between sustainable investing and profit. I think that investing sustainably can help investors do better and reduce risk. Although ESG investing is new, there are already many studies showing that ESG investing generated better performance with less volatility.
   
   Even intuitively, it makes sense that companies that do better on ESG issues can outperform. For example, a business that doesn’t rely on oil and gas for most revenues will do better than the one that does as the world transitions to renewables. If you invest in a company that has a diverse management team, they are less likely to come up with tone-deaf consumer products. A company that treats its employees well is going to have less employee turnover, and constantly hiring and firing people is expensive.
   
   There is a caveat, though. Some ESG funds and apps are relatively expensive, so if you invest in something that charges very high fees because the fund can get away with it, your returns are going to suffer. They will suffer not because underlying stocks or funds don’t do well but because of the fees to whoever runs the fund or the app. We try to highlight high fees on our site.
   
   ‍
4. Tell us more about why SustainFi is unique.
   
   Right now, there isn’t any other resource that explains ESG investing to regular investors who want to invest sustainably.
   
   ESG investing first became popular with institutional investors like foundations and pension funds, and there is information for them, but a lot of it is very technical. There are hundreds of agencies that assign ESG scores, and they frequently disagree with each other. A lot of that data is also hidden behind paywalls.
   
   At SustainFi, we are trying to use all the ratings from agencies like MSCI, Sustainalytics, and from Fossil Free Funds, and to come up with consolidated recommendations.
   
   Right now, we are the only resource that offers:
   
   - Very comprehensive resources on how to start investing sustainably and pick the right funds, including fossil-free funds
   - Reviews of robo-advisors with ESG portfolios, including an analysis of what they really invest in
   - Resources on finding sustainable banks and credit cards
   - Guides on starting impact investing
   
   Eventually, we will also help match investors with sustainable financial advisors.
   
   ‍
5. There are so many companies that claim to provide sustainable investing solutions. How are customers supposed to differentiate what's true and what's greenwashing? How do you define greenwashing in the investing world, and can you give examples?
   
   Greenwashing is saying that a conventional investment is “green” or “sustainable” for marketing purposes. It can be very hard to tell the difference: an investor would have to spend a lot of time analyzing fund holdings and ratings. It’s just not doable for most people who have jobs and don’t want to spend their free time thinking about investing.
   
   As an example, Morningstar found that in 2020 over 250 European funds reinvented themselves as “sustainable.” A lot of these funds didn’t actually change much in their investment process; they just changed the label on the fund to attract more money. We have the same issue in the U.S.
   
   Moreover, many investors understandably think that if they invest in an ESG or a "sustainable" fund, it won’t include fossil fuel companies. That isn't true.
   
   The largest ESG exchange-traded funds (ETFs) like ESGU invest in oil and gas companies like Chevron and Exxon. The reason for that is that these funds were designed with large institutions, like pension funds, in mind. These institutions must generate performance that’s close to the overall stock market. Because the stock market includes fossil fuel companies, these funds do as well, but they generally invest less in fossil fuels. They also claim to choose fossil fuel companies that have better ESG ratings, for example, because they are less polluting than peers.
   
   But there are also many ESG funds that do not invest in fossil fuels, and anyone who wants to divest has options. There are funds such as CHGX that don’t own anything related to oil and gas. Anyone can buy them through their brokerage account.
   
   Having said that, I don’t think that ESG investing always means not owning any oil and gas companies. Sometimes it’s easier to drive change from within, so you could argue that ESG investors should be buying oil and gas company stocks to pressure them to decarbonize. In May this year, a small activist fund called Engine No 1 won a shareholder fight to appoint three directors to the board of Exxon Mobil. They will work to advance sustainability goals. Engine No 1 just launched an ETF, the VOTE ETF. They will own all the largest U.S. companies and try to transform these companies from within.
   
   So, in the end, it’s up to the investor to decide if they want a fund like CHGX that owns no fossil fuels or an activist fund like VOTE that wants to make an impact through shareholder engagement. (Personally, I don’t currently own any fossil fuel companies, but I am considering adding the VOTE ETF.)
   ‍
   ‍
6. What is activist investing and what's your take on it? Isn't there a conflict of interest between investing in a company and wanting to make a structural, positive change?
   
   I think activist investing is great. Its goal is to generate returns by driving positive change, so I don’t think there is a conflict. Companies are more inclined to listen to people who own their stock than to those who don’t, so I think that it’s easier to drive change as a shareholder.
   
   For example, if investors can convince an energy company to invest more in renewables, they are future-proofing the business, which should be good for its stock price.
   
   Up until now, there’s been almost no activist investing that’s targeted ESG issues, but we are seeing that change.
   ‍
   ‍
7. Other than SustainFi, what are some of your favorite tools and resources for fighting climate change and creating justice?
   
   How to Avoid a Climate Disaster by Bill Gates and Activate Your Money by Janine Firpo are both great resources on climate change and investing with impact.
   
   ‍
8. What is one thing you wish more people understood about the movement for a more sustainable future?
   
   A holistic approach is very important. Many people focus on small things but forget about bigger things. For example, someone may be very focused on buying offsets when they fly once a year (which is great!), but they forget that their savings are invested in funds that invest in fossil fuels. (I mean regular mutual funds, not activist funds with an ESG agenda.)
   
   ‍
9. What can we do to inspire more people to get involved with sustainable finance?
   
   Raising awareness is key. There is much more coverage in the consumer-facing media about sustainability-related issues that aren’t related to finance. This is probably because many people find finance and investing intimidating and don’t know where to start. I wish that would change.
   
   ‍
10. Any advice for people who are new to the fight against climate change or aren't sure what their place is?
    
    Start by looking at and understanding where your money is currently invested and what it is implicitly supporting. Then decide what you can do to invest it in a way that aligns with your values.
    
    
    
11. Any parting words?
    
    ESG investing is about more than climate and the environment. It’s also about social and governance issues, like investing in gender diversity, local communities, and good governance.