Sustainable investing is a growing trend in the world of finance. It’s an approach to investing that focuses on long-term goals rather than just making money. This means that companies will need to consider factors like the environment, workers, and consumers when creating products and services. Community investing is a proactive approach that focuses on financing projects specifically designed to benefit poor and underserved communities.
Sustainable investing is one of the most powerful and impactful investing trends that people are looking into to help make a positive change. It involves tackling climate change, as well as animal and human rights. Sustainable investing focuses on generating financial returns and emphasises the importance of ethical considerations in investment decisions. As more investors seek to align their portfolios with their values, it becomes crucial to approach this landscape with a discerning eye, particularly when understanding greenwashing practices.
By educating themselves about the true sustainability of their investments, investors can ensure that their contributions are genuinely making a difference rather than simply enhancing the image of certain companies.
Community investing institutions such as banks, credit unions, and loan funds are crucial in promoting social and environmental benefits through targeted financial activities.
It allows you to invest with intention based on your ethics and values, making investing much more personal.
What Is Sustainable Investing?
Sustainable investing is an investment approach that goes beyond traditional financial metrics to consider environmental, social, and corporate governance (ESG) factors in investment decisions. This approach aims to generate long-term financial returns while promoting positive environmental and societal outcomes. By integrating ESG factors, sustainable investing minimises negative impacts and supports companies committed to ethical practices and responsible corporate governance.
This investment strategy encompasses various methods, including ESG, ethical, and impact investing. These strategies can be applied across asset classes, such as stocks, bonds, and real estate. For instance, ESG investing involves evaluating companies based on environmental practices, social responsibilities, and governance structures. Ethical investing focuses on aligning investments with personal values, such as avoiding companies involved in harmful activities. Impact investing aims to generate measurable social and environmental benefits alongside financial returns.
In essence, sustainable investing involves making investment decisions that seek financial gains while contributing to a more sustainable and equitable world.
Why is sustainable investing important?
With more people becoming aware of the environment and social impacts that many companies have on the planet, it is no wonder that more individuals are looking into a more socially responsible way of investing their money.
As part of the broader context of sustainable investing strategies, responsible investment incorporates environmental, social, and governance (ESG) criteria to achieve strong financial performance while contributing to social and environmental advancements.
Socially responsible investing (SRI) is an approach that considers financial returns alongside ethical, social, and environmental goals.
We are constantly reminded of unethical practices that certain businesses get away with. By investing in companies that put both their clients/consumers and the planet first, you can help nations, ethically driven businesses, and societies to grow, develop, and initiate positive change.
How does sustainable investing benefit you?
As an investor, you are more likely to know how and where your investment is going. When you choose to invest in companies that align with your values, you become part of the solution and help make positive change.
By selecting companies that prioritise social responsibility, sustainability, or ethical investing practices, you support their mission and contribute to a larger movement towards positive impact. This conscious decision-making can inspire others to follow suit, creating a ripple effect in the market. For those new to this approach, there are numerous investment strategies for beginners that focus on aligning personal values with financial goals, making it easier than ever to invest with purpose.
Sustainable investments can yield competitive returns while aligning with ethical values, emphasising the connection between high ESG standards and improved financial performance.
According to the Global Sustainable Investment Alliance’s 2021 Global Sustainable Investment Review, at the start of 2020, sustainable investment reached $35.3 trillion in five major markets (the US, Canada, Europe, Japan, and Australasia)—15% increase in the past two years (2018-2020) and 55% increase in the past four years (2016-2020).
Does Sustainable Investment Enhance Financial Performance?
Some investors worry that sustainable investing involves a trade-off between the planet and profit.
The reality is that it’s not about whether we might make less money by considering the environment; for us, it’s about how we can help you make more money by finding companies that are smart about the environment.
These are companies that can and are creating value for all stakeholders. Such companies are more likely to succeed in the long term and deliver profitable financial returns.
Fund managers will need to adapt to upcoming regulatory changes by implementing labeling systems by specific dates, ensuring transparency regarding sustainability claims and consumer investment goals.
An article by Bloomberg UK reported a record for sustainable investing in 2021. The article shows record-breaking fund inflows from investors who are ready to invest in companies working towards a sustainable future.
The four main approaches to sustainable investing.
Exclusionary screening
Environmental social and governmental integration
Thematic investing
Impact investing
Sustainable investing strategies encompass a range of approaches that incorporate environmental, social, and corporate governance issues into investment decisions. These strategies include exclusionary screening, ESG integration, thematic investing, and impact investing.
Exclusionary screening
This means not investing in companies or sectors that don’t align with your ethics and values. For instance, we will help you discuss with us which specific companies or sectors you would like us to avoid. Our goal is to help you invest in businesses that you want to put your money into.
Environmental, social, and governance integration or ESG
ESG Integration means incorporating environmental, social, and governmental issues into your analysis when you decide whether or not to make an investment.
You might do this because it’s important to your personal value system, you believe these companies will do better financially over time, or a combination of the two.
Investment management firms play a crucial role in integrating ESG criteria into their investment strategies and offering sustainable investment funds.
Recent data has shown that companies with highly-rated ESG practices have held up just as well, and as a whole have even outperformed the general global investment opportunity set.
During the first of the pandemic, large funds with ESG criteria outperformed the broader market according to a report published by S&P Global.
Thematic and ethical investing
Thematic investing allows you to invest in companies and projects that tackle specific issues that are meaningful to you. For example, say you are interested in green energy or development around creating access to clean water, especially in the poorer regions worldwide.
Impact investing
It’s about putting your money to work on businesses or projects with a focused mission to create and generate positive social, environmental, and value-based impacts.
The four main approaches are designed to generate a positive gain on your investment.
Overcoming Challenges in Sustainable Investing
Despite the growing interest in sustainable investing, investors and investment managers face several challenges. One significant hurdle is the lack of standardised ESG metrics and reporting frameworks. This inconsistency can make it difficult to compare the sustainability performance of different companies and investments, leading to potential confusion and misinformed decisions.
Another challenge is the perceived trade-off between financial returns and sustainability goals. Some investors worry that sustainable investments may yield lower returns or incur higher costs. However, evidence increasingly shows that companies with strong ESG practices can perform well financially over the long term. Additionally, sustainable investing requires a long-term perspective, which can be challenging in a market environment prioritising short-term gains.
Investors and Asset managers can use various tools and strategies to navigate these challenges. ESG ratings and scores, sustainability-themed indices, and impact investing frameworks can provide valuable insights into investments’ sustainability performance. Engaging with companies and policymakers to promote better ESG practices and advocate for sustainable finance policies is also crucial. Furthermore, working with investment managers with expertise in sustainable investing can provide valuable guidance and help investors make informed decisions.
By leveraging these tools and strategies, investors can overcome the challenges of sustainable investing and contribute to a more sustainable future.
How can we help you?
When searching for companies that are aligned with your values we consider these three things.
Environmental
What impact does the company have on the environment?
For example:
climate change
air and water pollution
waste management
energy efficiency
water shortage
Mutual funds, as registered investment companies, often incorporate ESG criteria in their investment decisions, focusing on companies that address these environmental issues.
2. Social
What positive aspects does the company have on its employees, their clients/consumers, and society?
For example:
Human rights
Mental and physical health
Gender equality
Data privacy
Many registered investment companies take environmental, social, and governance issues into account when making investment decisions, ensuring that the companies they invest in contribute positively to these social aspects.
3. Governance Issues
How is the company governed or managed?
board structure
company ownership
financial reporting
business ethics and culture
executive remuneration
Considering sustainable investing?
Here is how we can help you get started.
Pension funds, along with other institutions like universities and nonprofits, are increasingly incorporating environmental, social, and corporate governance (ESG) criteria into their investment strategies, using their capital to support socially and environmentally beneficial projects.
Ready-made sustainable portfolios
Build your own portfolio.
The Future of Sustainable Investing
The future of sustainable investing looks bright, driven by increasing investor demand, growing regulatory support, and advancements in ESG data and metrics.
As the world faces pressing sustainability challenges, such as climate change, inequality, and social injustice, sustainable investing is poised to promote sustainable development and mitigate negative impacts.
In the coming years, we can expect to see further growth in sustainable investing. More investors will likely incorporate ESG factors into their investment decisions, and more investment managers will offer sustainable investment products. Regulatory support for sustainable investing is also expected to increase, with policymakers introducing new rules and guidelines to promote sustainable finance practices.
Technological innovations, such as artificial intelligence and blockchain, are set to revolutionise sustainable investing.
These technologies can enable more efficient and effective ESG data collection, analysis, and reporting, making it easier for investors to assess their investments’ sustainability performance.
As sustainable investing evolves, it will become an increasingly important part of the investment landscape. This approach offers investors a way to generate long-term financial returns while promoting sustainable outcomes and contributing to a more sustainable future. By embracing sustainable investing, investors can play a vital role in shaping a better world for future generations.
To conclude
We all have our individual set of values. There are no reasons why we cannot reflect those values in something as personal and profitable as our finances. Whether that is to strengthen your portfolios, invest in causes that you care about or avoid the ones that you deemed unethical. It is always worth considering how you can implement a sustainable investing strategy in your portfolio.
Get in touch today to learn how we can help you