Sustainable investing is rising in prominence for investors looking for a balanced and diversified portfolio. This type of investment prioritises green and ethical investing and can lead to stable financial returns and wider social change.
This in-depth guide details the basic principles surrounding sustainable investing, as well as the potential long-term benefits. You will also find guidance on how to start sustainable investing in the future.
What is sustainable investing?
Sustainable investing is a specific investment approach aimed at generating long-term returns while simultaneously contributing to the advancement of sustainable solutions. It is also known as environmental, social, and governance (ESG) investing. It directs investment capital that is combatting climate change and promoting corporate responsibility.
In recent years, ESG assets have nearly doubled since 2018 and sustainable funds now account for more than 20 percent of the total European fund universe. Many institutions and renowned money managers have embraced ESG investing as climate change has begun to become a bigger issue.
Benefits of sustainable investing
In the face of ecological changes and mounting social concerns, ESG investing offers a variety of economic benefits while uplifting communities and nurturing the environment. Here are just a few:
- Reducing carbon emissions: Many ESG investments centre on developing renewable energy sources and low-carbon technologies. This capital allows companies to prioritise reducing carbon emissions and combatting climate change by implementing sustainable business practices.
- Mitigating risks for investors: ESG investments incorporate environmental risk assessments which enable companies to identify and avoid environmental liabilities. These could lead to significant financial risks associated with regulatory non-compliance and climate damage that could impede business growth.
- Strengthening communities: This type of investing emphasises community growth by contributing to local businesses, community-based initiatives and economic growth. This contributes to job creation, affordable housing and education development which goes a long way to improving societal well-being.
- Supporting long-term performances: Sustainable investing can generate long-term returns that support business performance for years to come. Strong ESG performances also lead to better risk management and resilience.
Tips on sustainable investing
For potential investors, the case for ESG investing is only getting stronger. It’s important to remember that whether you’re looking to build your portfolio or simply boost your credit score to open up the door for future investments, you should do so in a way that meets ethical principles such as choosing sustainable companies.
When choosing a sustainable investment asset, you should consider what your motivation is to integrate sustainability factors into your investor decisions. This will help you identify your implementation approaches. These include restriction screening, impact investing and company/issuer engagement.
Investors need a clear investment strategy and a properly considered operational model. This will provide a robust backbone for supporting implementation.