Understanding Sustainable Investing and Its Importance

19 Feb

It has become imperative for most of us to protect our natural environment and preserve our planet’s fragile ecosystems. Besides our environmental concerns, we also have strong social values. As caring citizens of the world, we can each play a role in helping our planet’s recovery and how others are treated. As investors, we have a choice in how we invest our money. Sustainable investing challenges industries and corporations to reconsider their business models and to align them with the personal values of their investors.

What is Sustainable Investing?

 With sustainable investing, investment capital is directed to companies that strive to combat environmental impact and climate change, while also promoting corporate responsibility. In other words, it considers environmental, social, and governance (ESG) factors as their criteria to generate financial returns. 

Where Did Sustainable Investing Begin?

 Believe it or not; the roots of sustainable investing go back to the 1700s in the U.S. and were practiced among faith-based communities. The establishment of the Pioneer Fund in Boston in 1928 was a first for investors wanting the choice to avoid “sin” industries. Examples of socially responsible investing were seen during the Vietnam War in the 1960s. In the 1980s companies avoided investing in South Africa in defiance of that county’s apartheid regime. Socially responsible investing grew even more in the 1990s. By the 2000s investors moved beyond social issues. Nowadays, sustainable investing also includes environmental and corporate governance issues. Today, sustainable investing has become the norm, and it is embraced by all categories of investors. According to the 2018 trends report published by the Forum for Sustainable and Responsible Investments, ESG assets under management in U.S. funds amounted to $12 trillion; amounting to one-quarter of the money under professional management. The growth was 38% from their previous report in 2016. The pandemic has brought renewed awareness among investors and interest in stock mutual funds with ESG mandates has increased. 

Why do You Need to Look at Sustainable Investing?

 Sustainable investing is offering you much more than just a conscientious approach to your investment. Fund companies are offering more sustainable funds than ever and have begun adding ESG issues to their investment portfolios. Uncertain times call for better risk management, and sustainable investing is the best tool for that. Bottom-line earnings are less likely to be affected in well-managed companies. This is because they are less likely to suffer problems like labor issues, boycotts, or public relations problems. Additionally, these companies are unlikely to be affected by any fallout from an environmental disaster impacting their stock value. Responsible investing has shown it does not fall short on performance. Sustainable investing performs better than conventional investing according to studies from various bodies, including Morgan Stanley, Oxford University, Nuveen, Deutsche Bank, and the United Nations. See the list of key studies maintained by the U.S. Forum for Sustainable and Responsible Investment (US SIF) here. Additionally, when stocks plummeted in the first quarter of 2020, sustainable equity funds held and rebounded to outrank conventional funds in the second quarter.  With 53% of investors citing better performance as their number one condition for investing in responsible investments, it may not be too late for you to explore how to add sustainable investing to your portfolio?

Photo by Mike from Pexels

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