Special Report: Earth Day 2023

Why is this Earth Day different from all other Earth Days?

The first Earth Day, in 1970, gave birth to the modern environmental movement. Every succeeding Earth Day reminds us that time is short to address the problems of carbon emissions and global warming.

Yet this year, a raft of promising incentives is driving progress to a low-carbon world and bringing us closer to Earth Day’s mission.

“This is one of the most exciting times to be investing in the [carbon] transition,” says Ian Simm, CEO of Impax Asset Management, which runs the Pax World funds. Simm cites the tax incentives and other incentives from legislation including the U.S. Inflation Reduction Act of 2022 as one source of this buzz. European responses such as improvements on the European Green Deal and the Net-Zero Industry Act, which will bolster production of green technologies, are adding to the excitement. “It’s unprecedented.”

Indeed, Simm believes the carbon transition will help accelerate the world’s growth, at a time that goods, services, and money are all becoming more expensive.

“If you care about the planet and are fortunate enough to have money to invest, it has never been easier to ‘Invest In Our Planet,’ ” says Morningstar’s Jon Hale, citing the theme of this year’s Earth Day. “Whether you have millions to invest or just a few hundred dollars, you now have more than 600 sustainable mutual funds and ETFs from which to choose.”

Those choices include a growing number of climate-aware funds and those investing in the energy transition. They include individual companies and, increasingly, corporate and municipal bonds that are tied to sustainable goals and bear penalties if the issuer misses targets. “Today, if a company doesn’t meet its sustainable targets, they have to pay me more,” says Patrick Drum, who oversees sustainable fixed-income assets at Saturna Capital.

While sustainable funds span a range of specific investment approaches, their focus is on providing competitive returns while also having a net positive impact on people and planet. Your investment “becomes part of a massive signal to corporations around the world that investors value sustainability and want them to incorporate sustainability into their decisions for the long-term prosperity of shareholders, employees, and the planet,” says Hale.

To be sure, in some ways, this Earth Day isn’t different. Even as the world suffers more extreme weather and higher temperatures, progress toward fighting global warming isn’t moving fast enough. Says Bob Mann, president of Morningstar Sustainalytics, “Every Earth Day that passes makes each succeeding Earth Day a little bit harder. Our time to do something important is narrowing.”

In the United States, the regulatory climate is moving toward progress, but the use of so-called environmental, social, and governance factors (financially material factors that aren’t part of traditional financial metrics and are a key element of sustainable investing) has become the target of criticism by some Republican politicians. That may be having some effect. Even though sustainable indexes beat the market in the first quarter, investors pulled a net $5.2 billion from sustainable funds at the same time. For an assessment of which criticisms make sense and which don’t, read this.

To aid your investment this year, we pulled together a raft of articles from Morningstar experts describing potential Earth Day-related investments.

Jon Hale talks about options for investing in clean energy funds. Tom Kuh, head of ESG strategy for Morningstar indexes, writes about top-rated funds from sustainable-investing pioneers.

Lindsey Stewart, director of investment stewardship research, explores how investors are pushing companies to align with a lower-carbon future. And enterprise sustainability product manager Susan Zhou shares the industries that are best aligned with that future, in light of a new study based on Sustainalytics’ new low-carbon transition rating.

We also look at how countries around the world stack up on ESG practices, the environmental impact of food and agriculture stocks, opportunities for investing in lumber stocks, and the world of carbon capture technologies.

If you’re just getting started in your sustainable-investing journey, consider this advice from Samantha Lamas and Ryan Murphy, who study behavioral insights for Morningstar’s Investment Management group. Or heck, if you’re just looking for something to read, check out our sustainable-investing book list.

Here’s a roundup of other Morningstar and Sustainalytics pieces you may find interesting:

Best Sustainable Companies to Own: 2023 Edition

We believe these companies’ strong ESG management practices give them a long-term advantage.

How Stock Markets Around the World Stack Up on ESG Practices and Carbon Risk

The Morningstar Sustainability Atlas uses the constituents of Morningstar country indexes to examine the sustainability profiles of 48 country-specific equity markets.

6 Top-Rated Funds From Sustainable-Investing Pioneers

How Earth Day mobilized sustainable investing.

Can’t Plant a Tree? These 2 Lumber Stocks Score High on Sustainability

Forestry REITs Rayonier, Weyerhauser meet sustainable goals and look attractive for long-term investors.

What to Know About Carbon-Capture Technologies

A look at this new frontier for investors, plus how to invest in clean energy.

3 Food and Agriculture Stocks to Add to Your Shopping Basket

Expected increases in food demand and proactive management of ESG concerns bode well for FMC, Corteva, and Barry Callebaut.

Sustainability Books: Your Reading List

A clutch of book recommendations from sustainable-investing experts.

2023 Proxy Season: What to Expect for Climate Resolutions

During proxy season, every week is Earth Week.

5 Clean Energy Funds to Consider

Plus, options for investing in lithium and electric vehicle ETFs.

Which Industries Are Best Prepared for a Low-Carbon Future?

Telecom and utilities companies stand among the leaders, according to Morningstar Sustainalytics’ Low Carbon Transition Ratings.

How Much of Your Portfolio Is Addressing Climate Change?

Use Morningstar’s new impact metrics tools to find out.

4 Steps to Add Sustainable Investing Strategies to Your Portfolio

Your guide to uncovering what your sustainability goals look like and how to put them into practice.

Read This Before You Start Investing in Sustainable Funds

Understanding the basics of sustainable investing, part 1.

Finding the Right ESG Funds for Your Portfolio, Part 2

By taking the time to explore the different approaches to sustainable investing, you can find the right investments for your situation.

4 Steps to Building a Sustainable Portfolio

Here’s how to build a portfolio that fits your sustainability goals and interests, like climate change.

Will SVB’s Failure Create Headwinds in Clean Technology?

Factoring in Biodiversity: Companies Just Aren’t Ready

A New Tool at the Table: Understanding Low Carbon Transition Risk by Industry and How Companies Are Managing It