Sustainable investing, or also called impact investing, aims to achieve financial returns while promoting a long-term environmental or social impact.
Important notes on sustainable investing
- Sustainable investing combines traditional approaches with the concerns for environmental, social and corporate governance (ESG) factors, thus generating more comprehensive analyses that enable better investment decisions;
- There are two macro-strategies of sustainable investing that investors can adopt: negative screening that excludes specific sectors, companies or practices from a fund or portfolio based on ESG criteria or positive screening that picks sectors, companies or projects from a group defined for positive ESG performance relative to competitors;
- According to respondents in the Global Impact Investing Network’s (GIIN) 2020 report, sustainable investment performance meets or exceeds expectations for both social and environmental impact and financial return.
Sustainable investing has taken off in recent decades as a strategy that allows investors to reap financial benefits and promote a positive impact on the environment and society at the same time. Sustainable investments can be made in both emerging and developed markets and target a range of returns from below market rate, depending on investors’ strategic goals. The GIIN estimates that by 2022, the global impact investing market reached a size of $1.164 trillion.
In a sustainable investment strategy, companies are judged not only on the basis of their financial performance, but also by looking at ESG factors according to the concept of the ‘triple bottom line’, i.e. the idea that in addition to focusing on financial performance and profit generation, organisations should measure their social and environmental impact. Important factors in the analysis here are the company’s impact on the environment, its carbon footprint, its involvement and positions on social issues, management and board quality, executive remuneration and diversity, shareholder rights, general transparency and disclosure, anti-corruption and corporate political contributions.