Sustainability is a growing concern for most of us today. Countries around the world join together to address the challenges connected with global sustainable development, which the United Nations has determined as 17 Sustainable Development Goals (SDGs).
Sustainable business practices have become all-important without having a negative impact on the environment. And sustainable investing has gained much relevance in the investing world with more and more investors identifying environmental, social, and governance (ESG) factors which affect their performance and market value.
What is sustainable investing?
Sustainable investing is the process of integrating environmental, social, and governance (ESG) factors with investment decisions to improve long-term returns. When traditional investing offers investment opportunities in well-known assets such as equity, bonds, fixed deposits, and treasury bills with expected returns, sustainable investing helps balance traditional investing.
Making sustainable investments is to invest in organizations or companies that have a measurable environmental impact on society with a financial return. Individual and institutional investors can choose investments depending on personal priorities and market values.
Unlike that in the past, sustainable investing today takes the best investment approach that gives maximum benefits considering the ESG factors and corporate financial performance.
What makes sustainable investing important?
For a world with a more sustainable future, sustainable investing is essential. Investors, whether institutional or individual, should try to make investments that have a positive influence on society. Some of the tough challenges we face today are climate change, energy issues, deforestation, and air pollution. Governments, industries, and companies have to bring in serious changes in their operation. The investors can influence them as they have the power to do it.
Sustainability is fundamental to the performance of a business. Firms, offering sustainable investment opportunities can earn financial returns, as well as realize intrinsic returns. More and more investors are looking at investments beyond financial returns. They want to make contributions to companies that hold a strong sense of purpose and offer sustainable solutions to the ESG factors.
Studies conducted by MSCI Inc. and the University of Cambridge in this regard show that the companies with better consideration of ESG factors performed well, with higher profitability and better return on assets, and lower tail risk. On the contrary, the firms that cause ESG violations are looked down on by investors and shareholders, and it affects their performance and branding in the long run.
Sustainable investing is growing steadily owing to the evolving macro-economic trends and the increase in the number of millennials. It is estimated that two billion people will add up to the existing population by 2050. It will increase the demand for water, food, and energy, which, in turn, will ask for innovative developments in infrastructure.
Environmentally friendly projects that help generate energy from natural sources, produce clean water, provide better healthcare and sanitation, and efficient transportation systems offer enough opportunities for sustainable investing.
Sustainable investing and socially responsible practices
If you want to be in the investment industry, you need to adopt sustainable investing with socially responsible practices to have a competitive advantage in it. Have your corporate culture, technology, processes, and training aligned with it. How would you do it?
Corporate values should reflect the main principles of sustainable investing, and make the companies accountable. Executives should adopt corporate culture visibly to influence employees. Moreover, companies should ensure that advisors receive proper training to conduct effective conversations with clients regarding sustainable investing.
The sustainable investing market is growing with most investors using sustainable investment strategies to attain significant benefits.