Sustainable investing - on the move.

Traditional investing delivers value by translating investor capital into investment opportunities that carry risks commensurate with expected returns. Sustainable investing balances traditional investing with environmental, social and governance-related (ESG) insights to improve long term outcomes.

In many ways, sustainable investing can be seen as part of the evolution of investing. There is an increasing recognition amongst industry participants that some ESG factors are indeed economic factors, especially in the long term, and it is therefore important to incorporate ESG factors.

As sustainable investing continues to grow, the pressure is on for companies to move toward the sustainable investing model. In a time when the investment industry is challenged by rising regulatory expectations and uncertain economics, the alternative of not evolving leaves the industry vulnerable to decline. The next stage of development will depend heavily on industry leadership and innovation in investment thinking and practice, as well as data management. 

Sustainable investing enables you to invest in companies that are striving to have a positive impact on the world. From tackling climate change, to equal rights and animal welfare you can select investments based on your values in a way that could also help you achieve your long term financial goals. These investments can help nations, companies and societies to develop, innovate and grow. This means you’re not only investing in your own future but investing in positive change and progress too.

As an investor, you are likely to want to know where your money is going. When you invest sustainably, more of your money is aligned with companies that are making this difference.  It also recognises companies that aim to solve the world’s biggest challenges and therefore these could be the best positioned to grow.  Environmental and social issues can impact share prices. Factoring these into your investments could help reduce the level of risk, increase the resilience of your investments and deliver long term capital growth.

Companies that can create value for all stakeholders (including the environment and society) are more likely to succeed in the long term and deliver stronger financial returns.

• Ethical investing

• Environmental, Social and Governance (ESG) investing

• Impact investing

While these broadly mean the same, there are some key differences in the way they work, which are important to know before you choose how to invest.

Ethical investing tries to actively avoid companies or industries that might have a negative impact on society and the environment - this is called negative screening. Sectors such as tobacco, animal testing, gambling and oil and gas are typically excluded from this type of investing.  

ESG investing actively selects companies that meet specific environmental, social and governance requirements. It is less restrictive than ethical investing as it considers companies that are adapting, such as oil companies that invest in clean energy.

Impact investing actively selects companies whose positive impact on the world can be measured. For example, those who generate a specific amount of recycling or save a certain amount of water.

So whilst sustainable investing was not too long ago considered somewhat of a niche market, as the tectonic plates of investing move, it is gradually becoming more mainstream.