You Can Start Investing In A Greener Future For Exactly $1 — Here's How

"We can be a part of something that is bigger than us."

From crypto to meme stocks, investing is a hot topic at the moment. But those aren't the full picture. There's also a growing movement of investors who are using their cash to support green companies and push back on climate change.

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If you're someone who's held off traditional investing because of ethical concerns about where your money will go or if you've been curious about crypto but its environmental impact turns you off, you might find that this kind of values-based investing feels like a better fit for you.

Here are 10 things you need to know about using your money to invest in a cleaner environment:

For some expert insights, I talked with Boris Khentov, Senior VP of Operations at the investment company Betterment, who spearheaded putting together the company's newest climate impact portfolio.

Keep in mind: All investments carry some risk, which means you could lose money. As a general rule, don't invest anything that you can't afford to lose and do your own research on the market before you put money in (perhaps these books and podcasts can help).

1. You can start investing in environmental causes for as little as $1. Seriously.

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Back in the day, you needed to have big stash of cash set aside to start investing, but that's officially over. Now, online brokerages and investing apps make it almost ~too easy~ to start investing and many platforms have no minimum required deposit so you can start investing in a way that actually fits your budget. Even $5 or $10 a month can really add up over time, especially if you let compound interest do its magic. 

For Boris Khentov, the appeal of this kind of values-based investing is clear: "When it comes to sustainable investing, this is a thing where we can be a part of something that is bigger than us." 

2. You don't *have to* pick all your stocks. Some apps actually offer ready-made portfolios that let you invest in your values.

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If the thought of picking and choosing investments is just too overwhelming, you're not alone. While some people love picking out investments, all the fine print and finance jargon can also be really intimidating when you're just starting out. 

If you can relate, you might check out roboadviser apps like Acorns and Betterment, which offer diversified, low-cost, and sustainability-focused options that are really easy to use and can be tailored to fit your personal tolerance for risk. Pretty much all you have to do is enter your information, answer some questions, and set up recurring deposits. And just like that, you're an investor.

3. Or if you'd rather build your own custom portfolio, you can open a brokerage account or use retail investing apps to get started.

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If you want to get creative and dig into the data, you can build your own custom sustainable portfolio through a brokerage account or by using investing apps like Robinhood or SoFi. You'll start by linking your bank account so you can transfer money into your investment account. Then, you need to actually choose the stocks or other assets that you want to buy. You can buy whole shares of stock or opt for smaller fractional shares, depending on the stock's price and your budget.

4. How can you tell if an investment is environmentally friendly or supports social justice? For starters, you might look for the acronym ESG: Environmental, Social, and Governance.

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If you thought ESG was a band from the '70s, same. But recently this acronym has taken on a whole new meaning. Khentov explains, "These days, sustainable investing is based in something called Environmental, Social, and Governance, or ESG. It comes from a place of evaluating your investments based on how they interact with the environment, with social issues, and with corporate governance issues." FYI, "corporate governance" just means how a company is structured and their management style, and it can also include the company's diversity in leadership.

When you're picking an asset to invest in, you might look up a company's ESG scores to decide if you want to buy their stock. Or you might choose to invest in ESG funds that bundle multiple stocks together.

5. ESG is a big blanket term. If you build your own portfolio, you can choose to focus on one particular cause or you can spread money across several causes.

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Because ESG can include everything from investments in alternative energy to directing money toward companies that prioritize racial and gender diversity in leadership, it can also be pretty vague. "A lot of people aren't sure what ESG means, including industry experts... It's sort of a very nascent space where a lot of people are indicating that ESG is important to them but they aren't actually necessarily sure what it is," Khentov explains. 

But because this term is still so loosely defined, you could come across an ESG fund that, for example, prioritizes companies with female executives so it includes investments in fossil fuels. Bottom line: Just because something is labeled as an ESG investment, that doesn't necessarily mean that it will align with your environmental values. Think about which causes matter most to you and always read the fine print before you invest.

6. One common misconception about environmental investing is that it's really expensive.

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Maybe in the past this was true but these days, not so much. It can actually be fairly inexpensive and straightforward, once you learn the market. "Make sure that you're investing in something cheap, something not too fancy," Khentov advises. "It has to be something that someone can explain to you in a couple sentences." So what does that mean in practice? Well, you're probably gonna want to check out some index funds and ETFs.

7. Environmentally focused index funds and ETFs can be a cheap yet impactful way to go.

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An index fund is a bundle of assets that follows a market index like the S&P 500, which tracks how the 500 largest companies in the US are doing. ETFs or exchange traded funds are bundles of assets that are traded throughout the day like stocks. The advantage of both is that bundling can lower your risk. If one stock in the bundle tanks, other stocks that are still doing okay can protect you from big losses. The other advantage to these is that they're cheap to own and tend to have low fees.

You might also look into green bonds or funds that bundle green bonds together. Bonds are generally thought of as lower-risk investments so their returns may also be lower. But the benefit of bonds is that they provide a fixed, predictable rate of return. And the money that flows into green bonds in particular goes into funding environmental projects around the world.

8. There's another myth out there that ESG investing isn't profitable but recent studies show that's not the case.

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In fact, in 2019, Morningstar data showed that ESG investments actually outperformed conventional funds. And some investors speculate that this trend will only continue as renewable energy becomes more mainstream. But Khentov cautions, "Nobody can ever predict the future." Because this kind of investing is still relatively new (and because life can be, well, ~unpredictable~) it's hard to say exactly where ESGs will go. All we can do is look at past performance and current trends, and evaluate the risks for ourselves.

9. And in case you're interested, there are a couple of different strategies that larger investors and firms use to advance their goals.

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One popular strategy is called divestment. This kind of investor is interested in making it harder for companies that cause pollution and environmental harm to raise money. One example of this is when the Church of England's pensions board divested their funds from Exxon Mobil in 2020. 

There's also a growing movement of activist investors like the hedge fund Engine No. 1, which engages directly with oil companies. Engine No. 1 recently used its influence to replace three Exxon Mobil board members with more climate-focused candidates and launched their own ETF to support future actions.

10. Finally, there are some big things in the works so it could soon be easier to figure out how environmentally friendly an investment is.

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The Securities and Exchange Commission is currently working on developing a standardized rating system for ESGs. Right now, multiple firms rate companies' ESG scores, but they all use different criteria and can vary a lot. Plus, in May, House Democrats reintroduced bills that would call for transparency around ESGs and empower retirement plan providers — like your 401(k) — to offer more sustainable investments. 

What do you think about the idea of investing in our planet? Share your thoughts in the comments below.

And for more stories about money and careers, check out the rest of our personal finance posts.