What Is Sustainable Investment?
Sustainable investment is a way of investing that balances the financial returns with the social and environment benefits. These terms include sustainable socially conscious investment, socially responsible investing and ethical investing. While the terms are not entirely clear, each of these strategies is based on the principle that we should all try to do our part to protect the environment and promote the social and environmental good.
Environmental, social and governance
ESG stands for Environmental, Social and Governance, and refers to three factors that are often considered when evaluating a company’s sustainability or ethical impact. ESG criteria are used by most socially responsible investors to screen investments. These criteria include corporate governance, ethical sustainability, accountability, and transparency. These factors are crucial to identifying sustainable investment opportunities. For more information on ESG investing, visit OECD’s website on ESG.
While individual investors often perform an initial analysis of companies, professional analysts use ESG factors to rate their stocks, ETFs, and mutual funds. The ESG score provides a quick snapshot of a company’s sustainability status. Companies with high ESG scores outperform their lower-ranking peers, by more than 25%. Additionally, stocks with higher ESG rankings tend to be less volatile than those that score low or do not score well. Sometimes, stocks that have been involved in high-profile ESG controversy events can underperform for up to two years.
Long-term business return
Globally, the concept of sustainable investing is growing. By 2020, assets under management are expected rise to $35.3 trillion. Neste, a global leader for circular and renewable solutions and climate change mitigation, is a good example of how it works. It is included on several sustainability indexes. Neste’s long term returns are among the highest in this industry, making it attractive for investors.
Sustainable investing isn’t just about social and environmental issues. ESG issues, such as supply chain management, can also be addressed by investing for long-term success. Many pharmaceutical and apparel companies now incorporate ESG considerations into their investment decisions. These companies are typically built for the long-term and are often more profitable than their peers. This is because companies that invest in sustainable solutions are more likely to be sustainable and last for the long-term.
Socially responsible investing
According to a US SIF Foundation report, at the end of 2019, there will be $17.1 trillion under management, up from $12.0 trillion two years prior. This represents 33 percent of the $51.4 trillion total assets under professional management in America. In the past, the largest contributors to the development of sustainable investment strategies have been credit unions, religious institutions, and private investors. In 2014, the volume of these investments could reach 45 billion Euros due to their growth over the past few decades.
Socially responsible investing means taking into consideration not only the financial returns but also the social benefits. Investing in such companies does not necessarily mean investing in unethical businesses, which is not sustainable. Socially responsible businesses are those that support the environment, produce products that aren’t harmful for people, and use ethical business practices. Socially responsible investing might be a good option for you depending on your morals, your goals and your values.
Impact investing
Impact investing is about doing good and making a difference. Impact investors are able support social causes and also make financial returns by investing in companies with a social mission. Some definitions of impact investing include investing in organizations with a social mission while avoiding those with a negative impact. Here are four examples. Consider the implications of impact investing and how it works for your company to understand its impact.
Impact investment is a term that refers to an approach that challenges traditional views about markets and social problems. This approach offers a variety of opportunities and produces financial returns. Asset managers offer clients a range of investment options that combine social impact with financial returns. Family foundations, for instance, can leverage their endowment to make impact investing possible. However, impact investing may not be for everyone. No matter what investor you are, impact investing is becoming increasingly popular and important part the investment process.