Sustainability and investing are two words that may seem incompatible at first glance. After all, how can you make money while also caring about the environment and society? Isn't investing all about maximizing profits and minimizing risks?
The truth is, sustainability and investing are not only compatible, but also complementary. In fact, more and more investors are realizing that incorporating environmental, social and governance (ESG), the 17 Sustainable Development Goals (SDG) and Corporate Social Responsibility (CSR) factors into their investment decisions can help them achieve better long-term returns without destroying the planet and still be a responsible shareholder.
SUSTAINABILITY & INVESTING - WHAT & WHY
What Is Sustainable Investing?
Sustainable investing is a strategy where you invest in a way that match you values and in companies that benefits the environment or society. It can be as simple as avoiding companies or industries whose products conflict with your objectives, morals, and values. You can also invest in ways that you believe will advance certain goals, such as reducing greenhouse gas emissions, improving human rights, or promoting diversity and inclusion.
Sustainable investing does not mean sacrificing financial performance for social good. On the contrary, sustainable investing seeks to align investment decisions with the investor’s social and environmental values, while still generating long-term returns. Earning a profit is typically one of the top priorities for investors, but with sustainable investing, profit isn’t the only goal. How and by what is equally, if not more, important.
Why Does Sustainable Investing Matter?
Sustainable investing matters because it reflects a shift in how businesses and investors think about value creation. In the past, value was mostly measured by financial metrics such as earnings per share or return on equity. However, these metrics are limiting and do not capture the full picture of how a company operates or how it affects its stakeholders.
Today, value is increasingly measured by sustainability like ESG factors that reflect how a company reports on how it manages its environmental impact (such as carbon footprint or water usage), its social impact (such as labor practices or customer satisfaction), and its governance practices (such as board diversity or executive compensation). These factors can have a significant influence on a company's reputation, risk profile, innovation potential, and long-term profitability.
By considering sustainability factors (such as ESG, SDGs and CSR) in our investment decisions, sustainable investors can gain deeper insights into how value will be created going forward. They can also identify opportunities to invest in companies that are well-positioned to benefit from emerging trends such as clean energy, circular economy, or sustainability transformation. Moreover, sustainable investors can use their capital to support startup companies that are aligned with their values and contribute to solving some of the most pressing challenges facing humanity, such as climate change, poverty, or inequality.