Best Brokers Offering Sustainable Stocks
As environmental and social issues move centre stage, online brokers are increasingly offering sustainable stocks, indices and ETFs. Put simply, investors want to put their money in companies that are committed to improving the environment and communities in which they operate. There is also a growing argument that investing in sustainable stocks could offer more stable, long-term returns.
In this guide, we list the best brokers for sustainable stock trading in 2024. We also explain how to compare sustainable investing products and the steps to get started.
Best Brokers For Sustainable Stocks for United States
Sustainable Investing Explained
Sustainable investing aims to support companies that have a positive impact on the environment. These businesses are often focused on improving the planet by reducing pollution and conserving natural resources, among other sustainable practices. For traders, this could mean investing in renewable energy companies or brands with energy-saving technology, like Tesla. Importantly, when you buy shares, the company receives funds to grow while you own a portion of the business and earn dividends.
The best brokers that offer sustainable stocks rank companies based on environmental, social and governance (ESG) criteria. This essentially gives stocks, bonds, indices and ETFs a rating which individuals can use to determine where to invest.
Some sustainable stocks are known as ‘pure-play’ options where the business derives almost all profits from green activities, like eco-friendly alternatives to plastic. Other sustainable investments focus on companies that use natural resources and manage waste more effectively whilst retaining traditional revenue streams.
The Rise of Sustainable Investing
Sustainable investing has boomed in recent years. In 2014, there was approximately $15 trillion worth of ESG assets under management, while by 2022, this figure had risen to almost $40 trillion. Market commentators expect this number to grow to $53 trillion by 2025.
Sustainable debt has also increased as more green bonds are issued. In 2021, issuance exceeded $1.6 trillion, compared to around $750 billion the year before, with sustainable bonds playing a major role.
But what is driving this unprecedented interest in sustainable stocks and investing products? Well, several factors. Governments and future financial decision-makers are encouraging companies to seek sustainable solutions to existing issues, such as waste management. This is, in part, because the wider public and activists like Greta Thunberg are putting pressure on governments to introduce reforms and crack down on unsustainable business practices. So with regulatory reform looming and evolving customer expectations, companies are being forced to introduce net zero pledges, create more ethical supply chains and reduce their reliance on natural resources. Investors are also beginning to realise that sustainable firms could offer more greater, long-term returns.
Brokers that offer sustainable stocks have also expanded their ESG ratings and metrics so clients can make more informed investment decisions. The top platforms provide a range of research and analysis tools so customers can identify investment risks and generate profitable returns.
Returns
The sustainable investment industry is no longer a niche sector in trading markets. The continuation of the climate crisis alongside increasing public awareness has caused the industry to expand rapidly, sparking a boom in respective trading assets. Projects developing renewable energies, solutions to climate issues, plastic alternatives and more, are all receiving vital funding.
Importantly, sustainable investing is also leading to profitable returns in well-performing stocks, indices and ETFs. Profits can also match and beat the returns offered by traditional stocks and assets. For the past 30 years, the MSCI KLD 400, an index that tracks companies with a high ESG rating, has provided investors with an annualised return of 10.2%. That is better than the S&P 500, which had a return of 9.7% over the same period.
Sustainable Investing Products
There are different types of green assets that you can invest in. The most popular instruments among retail investors include:
- Stocks
- Bonds
- Indices
- ETFs
Stocks
When you purchase sustainable stocks, you invest directly in companies that are committed to improving the environment and communities around them. Startups often sell stock to fund their projects and growth while aiding research and development.
The best brokers offering sustainable stocks provide access to various sectors, from renewable energy and manufacturing to pharmaceuticals and financial services. Tesla, for example, is now the sixth most valuable company with a market cap of over $900 billion.
Bonds
Sustainable bonds are essentially loans for green projects, designed to assist companies, government bodies and banks. Similar to stocks, the money you invest can help finance a range of projects and business endeavours. However, you have less control over where that investment goes versus stock trading. Nonetheless, sustainable bonds are increasing in popularity, with the London Stock Exchange (LSE) now featuring a sustainable bond market to which brokers like IG provide access.
Indices
The top brokers also provide access to indices. An index is essentially a group of stocks that have been assembled based on a market, industry, or another metric. Sustainable indices typically track the performance of a group of green-oriented stocks, allowing you to speculate on the overall direction of the group of companies by tracking the performance of the index.
ETFs
Sustainable ETFs also track groups of stocks, but with some additional flexibility. ETFs can track everything that an index can, but also track the index itself, as well as sectors and assets that are not indexed, like cryptocurrencies. With an ETF, a trader could invest in a selection of wind-energy related businesses, for example. The ETF could include everything from research to the sale and instalment of wind turbines.
Pros of Investing in Sustainable Stocks
- Investing directly supports companies aiming to improve our relationship with the planet
- The sustainable stock market is expected to grow in the coming years
- Unsustainable industries may be forced to change to stay profitable
- Sustainable stocks and assets have performed well in recent years
Cons of Investing in Sustainable Stocks
Our research did flag some potential drawbacks of trading sustainable stocks:
- Sustainability is hard to define and measure
- Some sustainable assets are overvalued
- Long-term performance data is lacking
- There are no universal ESG standards
Comparing Brokers That Offer Sustainable Stocks
Online brokers offering sustainable stocks, indices and ETFs can be difficult to compare. With that in mind, here are some key considerations:
- Assets – Look for brands that offer a mixture of sustainable stocks, bonds, indices and ETFs so that you can build a diverse portfolio.
- Fees & Commissions – There may be unavoidable charges, such as management fees for indices and ETFs, plus commissions when buying and selling sustainable stocks. Look for a brokerage with a transparent pricing schedule with no hidden fees. Some of the top brands also offer commission-free stock trading.
- Minimum Deposit – Make sure that you are comfortable with and can afford the minimum deposit requirement. For beginners, there are some platforms that have no minimum deposit, such as IG, while brands like ZacksTrade require up to a $2,500 initial payment.
- Demo Account – A demo account is a perfect place to get used to a broker’s trading platform and products. You can trade with virtual funds while retaining access to live prices and analysis tools. You can also use a demo account to test sustainable investing strategies.
- Research & Analysis – When trading sustainable assets, you will need access to reliable research and analysis tools. Look for integrated news feeds, trading signals, and intuitive indicators. These can all help you identify trends and predict price movements.
Getting Started
This tutorial will help you start trading at the best brokers offering sustainable stocks:
- Choose a broker: The first and potentially most important step is to select an online brokerage. Use our comparison points above to find an option that meets your needs.
- Research investment opportunities: Next, you need to identify investment opportunities. Use signals and indicators to screen for potential trades and follow the news. Newsworthy developments, such as the build-out of sustainable supply chains, can cause stock prices to surge.
- Deposit funds and invest: Once you are set up at a broker and have found a potential opportunity, deposit funds and purchase whichever stocks, indices or ETFs you believe could be successful.
- Monitor your portfolio: Now simply monitor your investments. If you do well, they will rise in value and you can look to sell and close your position.
Bottom Line on Brokers That Offer Sustainable Stocks
The best brokers offering sustainable stocks are perfect for individuals who want to invest in companies interested in protecting the environment and the communities in which they operate. When you invest in sustainable stocks, indices and ETFs, you fund companies looking to reduce their environmental impact through advanced research, new technologies and more efficient management. There are lots of great options when it comes to brokers offering sustainable stocks – use our guide to find the right brand.
FAQ
What Are Sustainable Stocks?
Sustainable stocks are equities that perform well against environmental, social and governance (ESG) ratings. These are essentially companies and businesses that have a positive impact on the environment and local communities.
What Is Greenwashing?
Greenwashing is a term used to describe the practice of incorrectly branding a company as environmentally friendly when its products or processes are not. Companies promote this image to improve their reputation and position in the market, in turn leading to greater profits.
Which Is The Best Sustainable Stock To Buy?
There is no clear-cut way to indicate which sustainable stock is the best to invest in. This will depend on your investment objectives and risk appetite. With that said, many of the most successful green stocks are in the renewable energy generation and storage business, including companies like Tesla.
Are Sustainable Investments Profitable?
Some sustainable assets and stocks have been shown to match or beat the profits of the wider market in a study by Morningstar inc. However, as with all trading, there is no guarantee of profits so make sure you conduct your own research before investing capital.
Which Is The Best Broker Offering Sustainable Stocks?
There is no simple answer as to which broker is best. Everyone has their own requirements and personal preferences. Use our pointers above to help find a suitable option.