What is Sustainable Investing? (2024)

FAQs

What is the meaning of sustainable investment? ›

Sustainable investing directs investment capital to companies that seek to combat climate change, environmental destruction, while promoting corporate responsibility.

Sustainable investing balances traditional investing with environmental, social, and governance-related (ESG) insights to improve long-term outcomes.

There are various types of sustainable funds, such as Equity Funds, Fixed Income Funds, Balanced Funds, Index Funds and ETFs, and Thematic Funds. Each type of fund focuses on different asset classes, investment strategies, or sustainability themes.

ESG metrics are used to evaluate your performance in specific areas such as carbon emissions, diversity and inclusion, and executive pay. On the other hand, sustainability covers a range of topics such as supply chain management, stakeholder engagement, and community development.

Key Points. Sustainable investing promotes long-term economic growth by encouraging companies to operate more ethically and responsibly. It helps protect the environment by directing capital towards sustainable practices and technologies.

The most widely applied sustainable investment strategy globally, used for two-thirds of sustainable investments, is negative screening, which involves excluding sectors, companies, or practices from investment portfolios based on ESG criteria.

However, there are also some cons to ESG investing. First, ESG funds may carry higher-than-average expense ratios. This is because ESG investing requires more research and due diligence, which can be costly. Second, ESG investing can be subjective.

To identify a sustainable investment, one can consider both the output of the economic activity itself and the way the activities are delivered to build a comprehensive perspective on the positive contribution criteria.

The most commonly used sustainable investment strategies include: negative screening, positive screening, ESG integration, impact investing, and more.

The sustainability objective must be consistent with an aim to achieve a pre-defined positive measurable impact in relation to an environmental and/or social outcome. Firms must specify a theory of change setting out how they expect their investment activities and the product's assets to contribute to positive impact.

Are sustainable investments profitable? ›

Balancing profit with purpose, sustainable investing not only offers financial returns but also promotes positive social and environmental outcomes.

Sustainable investing is an investment approach that considers environmental, social and governance (ESG) criteria in addition to traditional financial factors. Environmental criteria might include factors like a company's carbon footprint, resource use and energy efficiency.

Sustainable Funds Outperform Across Asset Classes

growth equities, or short vs. long duration fixed income. By asset class, sustainable equity funds performed best, with median returns of 16.7% for the full year, outpacing the 14.4% realized by traditional equity funds.

Greenwashing is the practice of trying to make people believe that a company is doing more to adopt sustainability than it really is, often for public relations reasons. Some claim to be more sustainable when they are in fact only making token gestures towards it.

The COVID-19 pandemic has reinforced the importance of ESG issues and accelerated the transition to a more inclusive capitalism. Investors increasingly believe companies that perform well on ESG are less risky, better positioned for the long term and better prepared for uncertainty.

Sustainable investing focuses on environmental, social, and governance (ESG) factors. Key principles include considering a company's impact on the environment, social responsibility, ethical governance practices, and long-term financial viability.

Sustainable investment means an investment in an economic activity that contributes to an environmental or social objective, provided that the investment does not significantly harm any environmental or social objective and that the investee companies follow good governance practices.

According to US Securities and Exchange Commission (SEC), sustainable finance, also called ESG finance, refers to investments that consider environmental, social, and/or governance factors.