Applying Sustainable Investing Principles & Strategies to EHS Budgeting

There are multiple terms to describe one of the most popular trends among 21st-century investors. You may know it as sustainable investing, green investing, socially responsible investing (SRI), or environmental, social, and governance (ESG) investing, but they all refer to the same phenomenon: the individual, company, or institution allocates money into an investment that prioritizes certain metrics over mere short-term returns.

Beyond the advantages inherent in sustainable investing (which we will use as a catch-all for the four terms mentioned above), there are a host of reasons why EHS Managers and other professionals in the field should familiarize themselves with this phenomenon and its underlying principles; chief among them is its usefulness when budgeting for EHS.

In this article, we present the basics of sustainable investing—a broad definition of the term, five key guiding principles, and common investing strategies—and apply the investing framework to the process of budgeting for EHS. Then we present a case study from one of our clients who, without deliberately making use of this framework, successfully applied its principles to reduce his company's EHS overhead and incident rate.

What is Sustainable Investing in 2025?

As we mentioned above, numerous labels exist for what is largely the same concept. While they each come with their own specificities, we believe it is more practical for interested investors (and EHS professionals) to work with a more general definition of the term.

With this belief in mind, we define sustainable investing as a set of investing practices through which the investor seeks to promote long-term environmental or social values in addition to achieving short-term financial returns comparable to the market.

It might be helpful to split that definition into two parts.

The first part is quite standard. Any kind of sustainable investing entails looking beyond the expected monetary benefits and evaluating the broader impact of contributing money to the company, fund, asset, etc. This potential impact is usually expressed as ESG metrics, which measure the effect an entity (namely, a company) has on the Environment, its advocacy for Social good, and the way the people behind the entity Govern it to drive positive change.

Investors weigh up these metrics, for example, a company's carbon footprint, water use, community engagement events, executive compensation, and political contributions, among others, when deciding whether or not to invest in a particular entity. The underlying principle here is that taking these into account gives the investor a more accurate picture as to how sustainable the business model is in the long term, based on assumptions on the expected effects of climate change, social attitudes, institutional governance, and technological innovation.

The second part is often ignored by most websites defining the term, but that does not make it any less crucial. Sustainable investing is not charity work. People and companies who invest in line with its principles do not value financial returns above all else and they (likely) expect a lower return (in virtue of abiding by more restrictive investing practices), but they part with their hard-earned money because there is a promise of some return.

In practice, a lot of sustainable investors expect a return that is in the ballpark of what the overall market (for example, the S&P 500) returned as a whole in a given year, as the market is generally considered to be every investor's opportunity cost. The good news is that, according to a paper published in the journal of Research in International Business and Finance in April 2024, sustainable equity portfolios from emerging and developed countries (except Japan) either significantly outperform (based on current holdings) or minimally outperform (based on historical holdings) their benchmarks.

Coupled with the good feeling of investing in causes that do not make a profit at other people's expense, the similarity between the returns from sustainable portfolios and the broader market might explain why sustainable investing has grown 25-fold (from 1995 to 2020) in the United States and now corresponds to somewhere between 12% and a third of the total assets under management worldwide.

Greenhushing During the Second Trump Administration

2025 has seen a drastic pullback in regulatory and business support for ESG practices, at least in the United States. The number of references to climate change in corporate reports and earnings calls has been steadily decreasing, and the SEC is actively attempting to limit the means shareholders have at their disposal to promote Corporate Social Responsibility (CSR), such as by abandoning its climate-related disclosure rules.

In response to this political climate, a number of companies have started engaging in "greenhushing". They hold back on publicizing their ESG commitments and performance, fearing political scrutiny, pushback from investors who believe ESG undermines returns, or dissatisfaction from stakeholders who wish their sustainability efforts went farther.

While it may seem like a smart tactic, greenhushing is (ironically) not a good idea in the long run. The citizen environment around climate change and sustainability has remained more or less unchanged, in that most ordinary people still hold the same, largely positive opinions of companies with CSR/ESG goals. As a result, products marketed with a sustainability message actually gained market share faster than conventionally marketed ones.

This is particularly true in Europe, where the Corporate Sustainability Due Diligence Directive is still set to take effect in 2026 and consumer attitudes consistently show higher levels of interest in sustainable business. (A similar trend has also been noticed in emerging markets.)

So if your company strives to be profitable beyond the short- and medium-term and/or do business abroad, greenhushing might not be the best idea.

Principles of Sustainable Investing

Sustainable investing that "promote[s] long-term environmental or social values" and remains on a par with the market requires work. Even those who wish to pursue a "set it and forget it" approach by regularly investing a fixed sum of money into an ESG ETF (more on those below) need to take the time to read the fund's guidelines to ensure it's a good fit for them and reassess their position every few months (ideally). When they and more active investors engage in this effort, they bring to the table a different investing mentality than their "unscrupulous" counterparts.

Each sustainable investor, company, or fund has a different sustainable investing methodology determined by their specific objectives and beliefs, but the five principles below (adapted from The MSCI Principles of Sustainable Investing, 2019) are generally present in all of them.

Defining Values

When setting out to invest sustainably, the first step must inevitably be defining what "sustainably" means to you.

Maybe your top priority is guaranteeing that the companies you invest in do not actively contribute to the destruction of the planet, and you are not as concerned with promoting gender equality in executive positions. Maybe the complete opposite is true. Or maybe you are primarily focused in fostering equitable economic development in your particular community and are willing to ignore ESG ratings entirely if it reassures you that your money is being put to good use (i.e., you actually see the development taking place where you live).

It is impossible to contribute to every cause you deem important, or at least to contribute to them equally; some degree of triage will be required. Don't feel bad about having to leave some out of your portfolio; after all, you can always invest in them later or contribute in a non-monetary way!

Once you've decided on the values that will guide your investment process, you can start researching companies, funds, or other assets that fit the bill.

And if you're considering sustainable mutual funds and ETFs, remember that every fund is created with a specific goal in mind that emphasizes or excludes certain business activities, companies, or sectors. In that respect, they prioritize certain values above others, just like you do as an individual investor, so make sure to read the fund's criteria, ESG strategy, and expected outcomes.

Leveraging ESG Data

ESG data enters the investment equation as you go about building your portfolio.

In an ideal scenario, you would follow the advice of an ESG analyst who carries out your investing due diligence for you based on a combination of the company's or fund's ESG exposure and disclosure and independent verification. But given that this "resource" is usually reserved for wealthy, institutional investors, you will most likely have to gather the ESG data yourself.

When researching a company, you'll want to read its ESG reports (if available) and vision for the future to get an idea as to how sustainable the company is or intends to become. You can also look at its ESG Risk Score on Yahoo Finance, its ESG ratings and, if it's one of the biggest companies in the world, search for independent articles that analyze the company's operations and assign it impact and/or ESG scores (see this article from Green Digest for an example on Meta's performance).

You might have an easier time at the fund level, depending on the provider. iShares Exchange-Traded Funds (ETFs), for example, often have descriptions on the fund's "Sustainable Screens" and "Sustainability Characteristics" on each fund's webpage  (see our "______" section below for an example), whereas other funds may be built for the purpose of sustainable investing and therefore explain their ESG goals in detail (as is the case with Wealthsimple's Socially Responsible Portfolio). There are also websites who specialize in a particular kind of ESG screening, such as Weapon Free Funds.

If the fund you are looking into does not provide this information, you might have to dive into its holdings and evaluate each company individually to find out whether any unsustainable activities are present at a level you are unwilling to tolerate.

Simply put, assessing how a company or group of companies is performing according to internationally recognized ESG criteria is the best method we currently have for comparing their sustainability commitments and determining whether a company or fund matches your values and should be a part of your portfolio (and to what degree it should).

Comparing with Market and Policy Benchmarks

Assume you've found a single broad-market ETF that covers all your sustainability bases and you invest all the money you set aside for that purpose into it, prepared to hold those shares for a long time... What do you do next?

The only thing you can do, as a beginner who does not want to (and shouldn't!) get involved with derivatives, is wait and see how the ETF performs. And to do that, you need to compare it to both its past performance and, more importantly, to alternative investments.

At a minimum, you should measure your investment portfolio against the market as a whole, ESG considerations aside; in the case of US index funds, an ETF like SPY or VOO does the trick. This is known as your market benchmark, and it helps you define your total investment opportunity set and quantify your returns and risk.

Think of it this way: if your annual returns at the end of the year are, say, 10% and the SPY ETF grew by 11%, you could argue that your "conscience" (i.e., your desire to invest sustainably) cost you 1% of your returns. That is your opportunity cost, and it is up to you to decide whether it's a fair sacrifice or not.

Apart from a market benchmark, you should also establish a policy benchmark. This can be a fund or index that works similarly to the market benchmark but incorporates your specific investment objectives, strategies, risk tolerance, and eligible asset classes. In other words, it reflects the market when ESG considerations are included.

For example, let's assume that, no matter how much money it could realistically make you in a year, you would never invest in a weapons manufacturer. Comparing your portfolio's performance to SPY thereby becomes irrelevant, given that the presence of companies like Palantir, GE Aerospace, and RTX Corp means you would would not invest in that ETF and that, as a result, its percentage growth above your own portfolio's is not an opportunity cost to you.

In such a situation, you would be better off finding another index or ETF that does reflect your values but in which you are not invested (such as DSI below). Doing so would actually allow you to quantify the impact of your decisions relative to a near alternate universe, and that way apply the fourth principle.

Readjusting Constantly

The easiest way to understand this principle is to imagine a scenario in which you are building your own portfolio of stocks (without ETFs) and therefore have absolute control over the percentage of the total assets under (your) management (in other words, capital flows) that each company receives.

One day, one of the companies in your portfolio drops its sustainability pledge. At the same time, another one publishes a report on its outstanding reduction in GHG emissions, and a third, brand-new recycling company catches your attention. It stands to reason that, in order to continue investing sustainably, you should sell your position in the first company, which you could then split between the second (which now has a bigger weight in your portfolio) and the third (which is included in it for the first time).

Sustainable active investing portfolio management, from reading company news to managing new risks, can be so time-consuming, it's no wonder people make entire careers out of it. It's totally understandable if you don't have the time to manage your portfolio yourself (in which case, an ETF is a great fit for you), but you should at the very least carve out an hour or so every quarter to evaluate your its performance.

Changes to company valuations, financial health, the political environment, and ESG commitments can happen fast, and unless you delegate the task of portfolio management to a professional who will charge you a fee or a percentage of your earnings in exchange, it is up to you to ensure your portfolio remains (and grows) in line with your values. 

Shifting Burden of Justification

The last principle of sustainable investing is pretty self-explanatory: investors who do not integrate ESG considerations into their portfolios should be the ones to have to justify their choices, not the other way around.

There is more to everything (your day-to-day work, a company, a portfolio, and life in general) than maximizing profit, or at least that seems to be the average individual's mindset in 2025.

According to MSCI, recognizing this reality and integrating ESG is "a transitional step to full incorporation of ESG considerations... [in] standard security selection, portfolio construction, and risk management practices". If you recognize the dangers of climate change, income inequality, and the other issues ESG criteria were created to measure, then you too will grant that the earlier we make this transition, the better.

Sustainable Investing Strategies

When it comes to the more common sense of the word "investing" (i.e., purchasing shares of a company), most, if not all, sustainable investing portfolios/funds follow one or several of three main strategies. These may share similar goals, but they result in vastly different end products.

These strategies for socially responsible and sustainable investing are:

1. Values-based investing: Deciding on which companies to invest in by aligning your finances with your ethical values, namely by setting a value standard and including/excluding companies that meet/fail to meet that standard.
   • Exclusionary Screening: Excluding companies or entire industries who engage in a particular activity that does not align with your values (or fail to engage in an activity that does align with your values). Ex: removing tobacco, firearms, and alcohol producers from a portfolio/fund of the top 500 companies in the United States.
   • Best-in-class Screening: Selecting the companies or industries who perform the best within a certain class that aligns with your values. Ex: picking the top-performing American companies who promote gender equality and diversity throughout their organization.
     
     
2. ESG Integration: Investing in companies according to a combination of ESG criteria and fundamental analysis, with the ultimate goal of enhancing long-term, risk-adjusted returns. This strategy usually entails selecting the companies with the best ESG scores within a specific market.
   
   
3. Impact Investing: Investing in a certain company or group of companies with the express purpose of generating a positive social or environmental impact, in line with the investor's values. Community investing, that is, directing capital to underserved communities, falls under this strategy.
   • (Look at companies like Vital Capital, Triodos Investment Management, and the Community Reinvestment Fund for examples.)

Sustainable ETF Example - iShares ESG MSCI KLD 400 ETF (DSI)

There are many types of socially responsible funds out there. Let's go through an example of an exchange-traded fund that puts several of the aforementioned principles and strategies into practice.

The iShares ESG MSCI KLD 400 ETF, with ticker DSI, is one of the largest sustainable ETFs in the United States by assets under management. Its primary objective is to track the MSCI KLD 400 Social Index (the policy benchmark), which is made up of US companies of all sizes (large-, mid-, and small-capitalization) with positive ESG characteristics. As such, it is a classic case of ESG integration and value-based investing.

If you visit the ETF's webpage, one of the first things you will see is a couple of bullet points defining DSI's underlying values, as well as a Sustainable Screens section. These two clarify that DSI (and the broader MSCI Index) was put together as a result of both best-in-class and exclusionary screenings: the fund's creators first screened out companies involved in a wide range of controversial activities (alcohol, fossil fuel reserves ownerships, gambling, tobacco, etc.) according to revenue thresholds or categorical exclusions, then selected the 400+ remaining companies with the best ESG scores.

Looking at the ETF's specific holdings, you can see further evidence of ESG-based exclusion driving the fund. Around 44% of the total assets are allocated to four of the 7 Magnificent Seven stocks (Nvidia, Microsoft, Google, and Tesla) and a handful of other huge technology companies (such as Oracle and Mastercard). Roughly 40% of the holdings are in the IT, financials, communication, and consumer discretionary fields. Rather than pointing to a prioritization of ESG scores, these market-cap weights highlight that the fund places a higher importance in larger, more profitable companies than on greener companies, giving it a "fairly light-touch ESG strategy" (see Morningstar article cited above).

You can also read the Sustainability Characteristics section for further details as to the green-ness of the overall fund. In the case of DSI, you might be satisfied to learn that almost all holdings have sustainability data available to the public for informed decision-making, not to mention the fund earned a Bronze medal from Morningstar, an MSCI rating of AA (a leader in its field), and a quality score of 7.2. The fund does lag, however, in the GHG emissions and implied temperature rise fields, which might dissuade the staunchest of environmentalists from investing in it.

We hope breaking down an ETF together shed some light on some of the pieces of information you should use to guide your sustainable investing decisions. There are plenty of ETFs out there with similar goals, so it's normal to feel overwhelmed; take your time, read through the ESG criteria and each fund's values and holdings, compare the ones that you think are a good fit, and do not expect to build a perfect portfolio from the start!

Other Examples of Sustainable ETFs

The table below is by far from exhaustive. We have included it solely to give you an idea as to the wide variety of sustainable funds out there. Browse the Environmentally Responsible ETF List from VettaFi for even more options

Applying Sustainable Investing Methodology to EHS Budgeting: A Case Study

Now that we have learned the principles of sustainable investing and looked at one way they are commonly put into practice in the world of finance, we have the foundation required to extrapolate to the burdensome task of building an EHS budget.

We believe the best way to go about it is to share a successful case study from one of our clients who, perhaps inadvertently, implemented the sustainable investing framework when budgeting for our Learning Management System (LMS) module. See our "What Does an EHS Manager Do?" eBook for the full breakdown of our client's approach to "running EHS like a business", as well as his experience with our software.

Step 1: Identifying Problems and Values

The EHS Manager at the company that eventually became our client started the process of budgeting for a software solution like any good sustainable investor: he first asked himself what he was hoping to achieve with his monetary investment and which values he was unwilling to compromise.

He sensed he was spending far too much time training his employees—upward of 400 hours every year. The excessive time commitment stemmed from the high turnover at his facility, the fact that each category of worker needed a different combination of training courses to be able to execute their job, and the need to teach most courses in person with a translator present.

The federal and state EHS regulations governing his company created a value "floor" for him. At a minimum, his purchasing decision had to respect the OSHA-enforced Employee's Right to Understand and other similar legal standards. If his company had had other sustainability goals, such as those listed in annual ESG reports, he would have had to implement those as part of his search criteria.

The EHS Manager went a step further. Instead of merely hoping to minimize his training time, he aimed to find a software solution that would further cut training expenses and reduce the total recordable incident rate (TRIR) at his facility (both of which make the company more sustainable long-term). These were his values, and they informed his conversations with software providers further down the line.

Step 2: Vetting Vendors/Suppliers

The next step in the budgeting process entailed researching EHS software providers and requesting demos from the ones that looked most promising to him.

With this information, the EHS Manager prepared an Excel sheet that listed every software's features and benefits, how they satisfied his values (ex: whether they integrated with his company's insurance provider to expedite the submission of compensation claims), and what their cost estimates were. This made it a lot easier to compare between software and make use of exclusionary and best-in-class screens: removing those who did not offer a key feature or lacked a clear overhead reduction approach, then selecting the most affordable (best-in-class) from the remaining ones. 

Ultimately, he was able to measure the impact that purchasing a given software would have on the budget, at least until it paid itself off.

You can think of this step as the equivalent of doing your investing due diligence, such as reading up on the ESG performance of companies you might want to include in your sustainable portfolio.

In fact, if your specific goal is to improve your supply chain's sustainability, there's a whole checklist (courtesy of Thomson Reuters) you can go through when assessing a vendor/supplier for potential risk factors related to their ESG practices. Some of the main aspects of their businesses that you should evaluate are:

• Their history of ethical business dealings
• How transparent they are when disclosing the source of their materials and components and their ESG performance
• The stability of their financials
• The alignment of their stated policies with actual practices
• How safe and energy-efficient their manufacturing processes are

Step 3: Establishing a Benchmark

Before putting the purchased software into action, the EHS Manager set out to define a benchmark against which to measure any potential reductions in EHS overhead.

He first gathered data on the current state of affairs. The hours he dedicated to training employees, overall productive time spent on training, the translator's wages, the total number and cost of compensation claims paid out to injured employees... he put a concrete numerical value on all sorts of expenses directly or indirectly related to employee training, then added them together. 

The final number he came up with was the opportunity cost of inaction. If he had changed his mind about purchasing a software, these expenses that were already taking up a large chunk of the EHS budget would have remained in place. They got the job done (i.e., they did not prevent the facility from producing output and generating revenue), but like most investors who limit themselves to investing in a fund that tracks the S&P 500, he felt there was a better alternative out there.

Step 4: Tracking Progress and Measuring Avoided Costs

Once the benchmark was set and the software was up and running, the EHS Manager sat back and monitored the situation, at least for the duration of the initial software license. It was at this stage that his "gains" began to show.

ERA's tablet-compatible online training functionalities allowed employees to undergo the same amount of training of the same (or better) quality of instruction outside in-person classes, saving the EHS Manager time and obviating the need for a translator. But the benefits did not stop at spared wages. It turns out that, once employees were regularly making use of ERA’s LMS, they suffered accidents less frequently and, when they did, the injuries were less severe (cuts and falls versus large equipment malfunctions). The total expenditure on compensation claims decreased significantly.

All in all, implementing the software and that way improving employee training alleviated stress on the EHS budget in four key ways, as shown in the graphic below.

After the first year of training his employees in this manner, the EHS Manager took the time to concretely quantify his savings relative to the benchmark. Doing so proved that ERA’s Training Module was not only working, but that it was a net profit. In fact, the EHS Manager recently estimated that overall savings in worker compensation are expected to amount to five times the cost of the ERA software license after a couple of years of use.

Moreover, reducing his facility's EHS overhead freed up valuable resources for further improvements to his safety programs (ex: purchasing more tablets for more employees to undergo training simultaneously), in line with the principle of constantly readjusting your portfolio based on performance.

Step 5: Reporting to Leaders

C-suite executives are usually in charge of reviewing and approving project proposals and EHS budgets, so it stands to reason that any fluctuations and reductions in EHS-related expenses should be communicated up the company hierarchy.

In our EHS Manager's case, this was a fairly simple step to take. He had cut the company's expenses by a flattering amount that made believers out of his supervisors, who are now “100% on board and take every opportunity to support and grow the training program”.

Other projects are less successful, but that does not make reporting progress any less important. Think of this step as the equivalent of summarizing your sustainable investing portfolio's quarterly performance. Even if you lost money, you most likely still want to know why and whether there are any changes you can make to correct your course, especially if you do not check in on your portfolio every day.

We dedicated a good number of pages in our "What Does an EHS Manager Do?" eBook to the way EHS Managers conduct budgeting discussions with executives, and we thoroughly recommend you give that a read.

Lastly, we also believe you should structure your performance reports according to your company's preferred ESG reporting framework. If you do not participate in the preparation of ESG reports as part of your company's sustainability commitments, you may not already be familiar with the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), Carbon Disclosure Project (CDP), or the many other frameworks available worldwide. There are many resources available online to help you choose the best framework for your project and audience, as well as countless software solutions that process your data and prepare your ESG reports for you, just make sure you consult with your supervisors before settling on one.

Conclusion

Sustainable investing is a hard science to master, and you are bound to get it wrong a few times throughout your journey. You might even realize that your investing values change as you get older. Both of these developments are totally normal. After all, that's why investors are constantly adjusting their portfolios, if only on a quarterly or annual basis.

EHS budgeting is no different, but generally speaking, the more data you have to measure your performance and back up a budgetary request, the more likely it is to be successful. That's where EHS Management software like ERA's come in: they equip you with the tools you need to leverage the data at your facility, establish baselines and benchmarks, and, as in the example we presented above, save time and money.

If your company has been struggling with sticking to a budget, or worse, overshooting them, you might want to schedule a discovery call with one of our project analysts today and start planning for reductions to your EHS overhead.