What is Sustainable Investing? (2024)

FAQs

What is Sustainable Investing? ›

Sustainable investing is an investment strategy that considers both the financial returns and the long-term impact on the environment and society. Investors avoid companies that cause harm or seek out companies that promote positive change.

Sustainable investing refers to types of investments that aim to generate long-term financial returns while advancing sustainable outcomes.

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

Traditional investing delivers value by translating investor capital into investment opportunities that carry risks commensurate with expected returns. Sustainable investing balances traditional investing with environmental, social, and governance-related (ESG) insights to improve long-term outcomes.

Directly investing in companies with strong ethical practices allows you to support specific businesses you believe in. This strategy requires some research to determine a company's ethical standing. Example: After checking ESG ratings, invest in a company like Tesla, which is focused on sustainable energy solutions.

Investors cited that their growing interest in sustainable investing is due to factors including new climate science findings (53%) and the financial performance of sustainable investments (52%). A majority of investors also believe that companies should address environmental and social issues.

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.

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.

In addition to financial performance, asset owners see an opportunity to target positive social and environmental impact, avoid reputational risk and comply with regulations.

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.

What is the sustainable investment rule? ›

The sustainable investment rule states that public sector net debt as a proportion of gross domestic product (GDP) will be held over the economic cycle at a stable and prudent level.

While there are many possible definitions, Bank of America defines sustainable and impact investing as: “Investments that target competitive financial returns and seek positive social and environmental effects.” Other common terms include socially responsible investing (SRI); environmental, social and governance (ESG) ...

$30.3 trillion is invested globally in sustainable investing assets. Data published in new GSIA report – Global Sustainable Investment Review 2022 – the 6^th edition of this landmark publication. In non-US markets, sustainable investment assets under management (AUM) have increased by 20% since 2020.

ESG Investing (also known as “socially responsible investing,” “impact investing,” and “sustainable investing”) refers to investing which prioritizes optimal environmental, social, and governance (ESG) factors or outcomes.

The SFDR defines sustainable investment as "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".

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.

The growth of sustainable investing

From 2020 to the end of 2021, assets in these funds grew 52 percent to $362 billion. Broadridge Financial Solutions projects that ESG assets could reach $30 trillion by 2030. Despite this growth, however, sustainable investing does not necessarily yield greater returns.

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.