Everything You Need To Invest Sustainably
Sustainable investing or responsible investing refers to investment strategies that consider environmental, social and governance (ESG) issues as part of the investment decision-making process.
Sustainable investing is growing around the world
Interest in responsible or sustainable investing has increased substantially over the last decade around the world and across all audiences, from individual, retail investors to the largest institutions.
Global responsible investment strategy assets now total more than US$30 trillion, an increase of 34% since 2016.
Source: “2018 Global Sustainable Investment Review,” Global Sustainable Investment Alliance.
What is ESG?
ESG refers to environmental, social and governance issues that are taken into consideration when making investment decisions. Integrating ESG factors into investment processes can help identify key risk and return drivers in portfolios:
Environmental: Impact on the environment, which can include water usage, pollution, waste management, energy efficiency, gas emissions and climate change.
Social: Human rights, health and safety, employee working conditions, community impact, diversity, population and demographics change, consumption patterns and shareholder reputation.
Governance: Board independence and diversity of board members, alignment of shareholders and executives, compensation, shareholders rights, transparency/disclosures and business ethics/culture.
Investment Approaches
In response to increasing interest, a wide spectrum of sustainable investing approaches and products have developed, ranging from mainstream investment management teams beginning to consider environmental, social and governance (ESG) issues as part of their investment processes to highly specialized 100% impact groups:
Exclusionary Screening
Definition: Excludes companies, sectors, or countries based on ethical, moral or religious beliefs. Purpose/ Objective: Eliminates exposure to a group of securities while pursuing a traditional investment objective (e.g., growth, income, etc.)
ESG Integration
Definition: Combines ESG data, research and analysis together with traditional financial analytics in making investment decisions. May not explicitly exclude investments in undesirable countries, companies, etc. Purpose/ Objective: Incorporates ESG risks into analysis of all holdings, as a component of financial risk with two primary objectives, to reduce risk or improve performance alongside pursuing a traditional investment objective (e.g., growth, income, etc.)
Shareholder Engagement
Definition: Uses the power of shareholder and stakeholders to influence corporate behaviour. Purpose/ Objective: Influence corporate behaviour in order to move forward an issue related to Environment, Social or Governance initiatives.
Thematic Investing
Definition: Invests in sustainable businesses that are related to and likely to benefit from specific impact themes (e.g., energy efficiency, green infrastructure, clean fuels, low-carbon transportation infrastructure, etc.) Purpose/ Objective: Provides investors exposure to a specific theme, linked to one or more issue areas where social or environmental need has the opportunity to create growth opportunities.
Impact Investing
Definition: Investments made into companies, organizations, and funds with an intent to generate a measurable, beneficial social & environmental impact alongside a financial return. Purpose/ Objective: Focus on generating a measurable impact in one or more issue areas.
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