There is a worldwide pandemic, the global economy is coming to a halt, and the stock market has crashed. So why would now be a good time to become a sustainable investor?
Three reasons to become a sustainable investor now are:
Stock prices of corporate sustainability leaders are low. The current bear market (when the price of an investment falls at least 20% or more from its 52-week high) may be a good time to buy as prices are low, if investors are playing the long game.
For instance, listed below is the 52-week high and the current price for the three American highest ranked sustainable stocks on the Corporate Knights 2020 list of Global 100 Most Sustainable Companies.
|Company||Sustainability Score||52-week high||Current price (as of 3/24/20)||Percent change between high and current price|
|Cisco Systems Inc||83.59%||$57.95||$38.60||-33.4%|
|Hewlett Packard Enterprise Co||78.43%||$17.43||$8.94||-48.7%|
Low prices encouraged me to buy sustainable large cap stocks that I had been eyeing. Previously, I had kept my portfolio relatively conservative in expectation of a stock market crash. Now, the “sale” price for investments is allowing me to rebalance my portfolio, increasing the percentage of stocks in my asset mix.
Environmental, Social, Governance (ESG) indices have generally been outperforming their non-ESG counterparts during the 2020 market turmoil. As an illustration, the ESG versions of S&P 500, S&P Europe 350, S&P Global LargeMidCap, and S&P Developed LargeMidCap indices all performed better than their benchmarks, as depicted below.
As I watch the crash and volatility of the stock market, I have been consoled with seeing that my portfolio of sustainable funds has been outperforming a similar portfolio of non-sustainable funds. I recognize that I’m currently watching what is a short period of outperformance. However, in the times of COVID-19, I appreciate every “win”.
Low stock prices may result in lower capital gains taxes. A capital gain is profit from the sale of an asset, including investments. It is generally considered taxable income. As a result, taxes on capital gains may be a cause investors to hesitate about selling their non-sustainable investments. As profits from investments will currently be lower, capital gain taxes will subsequently be lower. (Note there is a difference between long and short term capital gains taxes).
Read Janine Firpo’s How I Used the Market Meltdown to Go Clean & Green about her story of using the current market prices to ditch her non-sustainable investments.
Investing in the stock market is risky, especially in these particularly volatile times. Invest only if you have the financial stability and risk tolerance to do so. The above is for educational purposes only. We do not provide recommendations to buy specific stocks or funds.
Photo by Amy Reed