What is meant by “Sustainable Investing”?
Sustainable investing is an investing philosophy wherein an investor takes a company’s environmental, social, and corporate governance (ESG) factors into account. This allows investment dollars to be used as a tool to promote positive societal impact and corporate responsibility without sacrificing long-term financial returns. Strategies for investing sustainably include avoiding companies that conflict with ESG principles and seeking out industries that are inherently more sustainable.Learn More: The State of Sustainable Investing in 2021
What are examples of sustainable investments?
Following the environmental, social, and corporate governance (ESG) framework, there are a wide variety of investments that can be considered “sustainable.” Industries that promote good environmental practices, via more renewable energy sources or by combating air and water pollution, are perhaps the first things that come to mind for most people. However, sustainable investing can also include investing in companies that support human rights initiatives or a more ethical corporate culture.
Is there such a thing as ethical investing?
For someone to invest ethically, they must use their ethical principles as the primary filter when selecting companies to invest in. What makes this different from green or ESG investing, each of which typically have an overarching set of guidelines, is that the criteria that make a company “ethical” can differ from one investor to another. For example, two investors who both value clean energy companies may disagree on whether or not nuclear energy qualifies as a “clean” source.Learn More: The Ethics of Investing
Is ESG investing profitable?
A 2019 study of 11,000 mutual funds conducted by the Morgan Stanley Institute for Sustainable Investing found that there was no financial trade-off in the returns of sustainable funds compared to their more traditional counterparts. Additionally, regardless of the asset class held, sustainable funds also showed a significantly lower downside risk. Finally, during periods of high market volatility, sustainable funds generally proved to be more stable investments.Learn More: Data Availability Drives ESG Investing Surge
Ethical investing is a form of investing wherein an investor purchases shares in companies because they share their personal values. Alternatively, investors may choose to instead remove specific industries from their portfolios that contradict or actively harm the causes they care about. It’s important for investors to do their research, especially when it comes to indices or mutual funds, to ensure their investments accurately align with their ethics.
Sustainability refers to something’s ability to be maintained at a certain rate or level. In terms of the business world, companies are considered “sustainable” if they create wealth and make people’s lives better without compromising the health and wealth of future generations. The goals of sustainability for businesses generally involve reducing natural resource extraction and waste generation as much as possible.
Issued by the International Organization for Standardization (ISO), ISO 14001 is a set of standards clarifying the best ways for organizations to reduce their environmental footprint by adopting an effective environmental management system (EMS). As with all ISO standards, rather than a specific set of instructions, ISO 14001 must be tailored to the specific needs and circumstances of the organization adopting it. There are over 300,000 certifications to ISO 14001 in 171 countries.
UN Principles for Responsible Investment (PRI)
The UN Principles for Responsible Investment (PRI) is a UN-backed international network of investors working to achieve a sustainable global financial system by encouraging the adoption of six aspirational principles. The PRI’s mission is to promote the incorporation of environmental, social, and governance (ESG) issues into investment practices. The PRI is funded primarily via an annual membership fee, in addition to grants from governments, foundations, and other international organizations.
Green investing is a form of investing designed to promote positive environmental change. Companies that focus on combating pollution, conserving natural resources, and other environmentally-conscious business practices are prime candidates for green investing. There are several different avenues for investors considering green investing, including green equities, green bonds, and green funds.
Green marketing is a form of advertising designed to highlight a product or company’s environmentally sustainable qualities. As pressure mounts for companies to demonstrate their commitment to protecting the environment, green marketing has become one component of a much larger sustainable business movement. When a company fails to live up to the promises of its own green marketing, it may be criticized for using positive environmental messaging to make false or misleading advertising.
A green fund is a mutual fund or other type of investment vehicle that exclusively invests in socially conscious or environmentally friendly companies. Green funds have become popular among investors seeking both socially responsible investments and to capitalize on the uptick in green technologies. According to the Forum for Sustainable and Responsible Investment, registered investment companies with ESG criteria, such as mutual funds and index funds, managed $3.1 trillion in assets in 2020.
Carbon trading, also known as carbon emissions trading, refers to the buying and selling of carbon credits that allow an entity to emit a limited quantity of greenhouse gasses. Since a profit can be made by selling leftover credits, both companies and governments are incentivized to scale down their carbon emissions in order to have more permits to sell. The idea of carbon trading was based on the 1990 Clean Air Act that significantly cut sulfur pollution.
Explore Sustainable Investing
Harvard Business School Online. "What Is Sustainable Investing?" URL: https://online.hbs.edu/blog/post/sustainable-investing
HSBC UK. "What Is Sustainable Investing?" URL: https://www.hsbc.co.uk/wealth/articles/what-is-sustainable-investing/
NPR. "Understanding the Promises and Limits of Ethical Investing." URL: https://www.npr.org/2022/01/11/1072207126/ethical-investing-with-esg-funds
Morgan Stanley. "Sustainable Reality: Analyzing Risk and Returns of Sustainable Funds," Page 9. URL: https://www.morganstanley.com/content/dam/msdotcom/ideas/sustainable-investing-offers-financial-performance-lowered-risk/Sustainable_Reality_Analyzing_Risk_and_Returns_of_Sustainable_Funds.pdf