Sustainable investing: is it worth?
|What is sustainable investing?|
|What are the 4 strategies of sustainable investing?|
|Is ESG the same as sustainable investing?|
|What are the three main approaches to sustainable investing?|
|What is the future of sustainable investing?|
|Does sustainable investing lead to better returns?|
It’s time to talk sustainability, but not in the usual, environmental way. Sustainable investing is becoming increasingly important in the trading and investing industry. It’s there to mitigate investment risk and encourage corporations to take an active stance on crucial topics such as climate change and social justice. Sustainable investors seek out prospects and financial returns in companies with a strong emphasis on environmental, social, and governance issues. Want to know more? Then keep reading.
What is sustainable investing?
One of the most important rules that all successful traders stick to is ensuring that their portfolio contains various investments - also known as diversifying. This is a good practice because it provides a shield for your investments. If you have it weighted in one sector that takes a big hit, you will be at risk. It also balances any associated risk that is attached to having all your eggs in one basket, so to speak. On a personal and corporate level, more and more investors have portfolios geared towards sustainable investing. This has become more commonplace over the last 10 to 15 years, and it’s unlikely to slow down anytime soon due to the likes of more governing bodies and investment banks sitting up and taking notice of how sustainability is a bigger selling point than quick and easy profits.
Sustainable investing is a concept that ensures important changes in society are being fueled by the right investments. It also looks to establish that businesses have an eye on things such as the future economy, environment and overall sustainability as opposed to just quick smash-and-grab profits.
Recent studies have shown that corporate and solitary investors can benefit from sustainable investing from a fiscal perspective. Issues such as the environment and key social change have rightly been at the forefront of politics and economics for most of the 21st Century. Sustainable investing encourages economic growth and a move away from the more damaging aspects of capitalism toward a world where individuals, businesses and society can all move in the same positive direction whilst making the world a safer and more harmonious place to live.
What are the 4 strategies of sustainable investing?
● ESG Integration - An ESG integration approach would calculate a delivery company’s petrol consumption versus any monetary factors to analyze any upcoming opportunities related to investment.
● Exclusionary Investing - Using an exclusionary investing approach, an investor may choose not to supply funds to companies that rely on unethical activities for their profits. This includes casinos, betting companies, tobacco companies and large oil companies.
● Impact Investing - Impact investing approaches may solely look at renewable energy companies that are completely set on developing clean energy and sustainable business models that do not rely on depleting finite resources.
● Inclusionary Investing - With an inclusionary approach, a fund may opt for the leading companies in a sector when measured against rival companies. For example, the top-performing tech companies in ESG (Environmental, Social & Governance - don’t worry, we cover this more in the next section.) may be in line for inclusionary investment over their rivals due to their stance on key social issues.
Is ESG the same as sustainable investing?
While ESG and sustainable investing share common goals, they are not identical. ESG focuses more on a specific area of environmental, social and governance. Sustainable investing is a broader term and focuses on the whole spectrum. However, ESG is a key driving force towards how a company is measured in terms of its sustainability. If a company scores high on the ESG system, it will rank highly in many sustainable investing models that governments and investment banks use worldwide.
What are the three main approaches to sustainable investing?
As discussed in the last section, ESG (Environmental, Social and Governance) are the main approaches to sustainable investing. We break them down simply below as follows:
● Environmental: This is pretty self-explanatory. This category focuses on the environmental impact, including examples such as water wastage, use of renewable energy, clean technology at every level of the company, and carbon footprint.
● Social: How the organization highlights social good and change within its ranks. Analysts explore its involvement and stances on various issues affecting society. This includes but is not limited to health and safety, engagement within the community, diversity and inclusivity regarding sensitive identifiable information such as sex, gender and religion.
● Governance: How the company is managed or encouraged to spearhead beneficial changes. This generally includes a full top-down measurement of the executive desk, the board, the rights of the shareholders, transparency with its customers and the media, and anti-corruption and political campaigns they have got behind.
What is the future of sustainable investing?
Sustainable investing will likely become the frontrunner for investors looking for consistent, steady profits rather than explosive and unsustainable growth. Unfortunately, many companies in the past have used models specifically designed for maximum short-term gains at the risk of many key areas of the environment. They have also neglected any thoughts posed about the worker’s rights, inclusivity or damaging societal effects.
Luckily, this market trend appears to be moving in the opposite direction. Companies like Tesla, which focuses on a more sustainable future, including the mass production of electric cars and renewable energies, are seeing huge explosions in their growth. With the likes of Tesla, other factors, such as the lithium batteries they use for their vehicles or petrol-powered rockets that Elon has been firing into space, come into play. Overall though, they’re doing a lot more good than bad on the grounds regarding key measurements of sustainable investing. There’s also been increased investment into companies that focus on cleaning the environment, conserving wildlife or vegan foods which help cut CO2 emissions, particularly in the American market.
Does sustainable investing lead to better returns?
A study recently showed that sustainable investing had provided better returns than non-sustainable investing over the last 25 years. This may surprise many people as historically lucrative investments in companies such as Amazon, McDonald’s, Coca Cola or a variety of oil companies may have come with a considerable environmental cost, despite considerable returns. However, this study has debunked that theory. As the world now moves towards renewable energies, with added focus on key issues such as equality and the environment, it’s hard to see how this trend will reverse over the next 25 years. If anything, you’d imagine sustainable investing will lead to better returns due to the increasing incentives being introduced in markets, primarily across the West but also further afield.
Sustainable investing is crucial since it can aid in the improvement of our planet. Investors can employ their funds to positively benefit society, thereby fostering a more sustainable future. We at amana encourage you to know more about it and practice it more.