Sustainable Investing

What is Sustainable Investing?

Sustainable investing is the practice of making capital allocation decisions based on socially responsible and ethical strategies to ensure that portfolio companies maintain a high standard of sustainability principles. Investing through ESG (Environmental, Social, and Governance) principles constitute part of sustainable investing and have become increasingly popular over the years.

Investors want to do their part in growing their capital with companies that take a long-term view of how their practices affect the environment and the world they operate in. Sustainable investing using the framework of ESG investing is helping to facilitate a new frontier for investors. It provides a choice in the marketplace with an increasingly attractive option for investors to grow their wealth or personally involve themselves in the push towards sustainable business practices.

Sustainable Investing – The New Frontier

Many funds and brokerages are taking on the challenge of making choices that look at sustainable investing practices. The ideas and principles are finding their way into even some of the world’s largest funds and financial institutions, as the importance of such principles in society is growing. Many capital contributors are putting pressure on asset management firms to adhere to more rigorous ESG investing standards.

Investors that look towards exchange-traded-funds ETFs and securities that hold true to such ideals are often motivated not purely by profit, but by the ethical drive to contribute financially towards moving the world to a more sustainable and ethical future for generations to come.

Values-Based Investing

Sustainable investing comes in many forms. Whether it is the purchase of a stock of a company that manufactures solar panels or biofuel or whether one is participating in a community loan fund, there are different methods of sustainable investing.

At its core is the desire to use money to bring about social change and good. The investor wishes to advance environmental, social, or governance principles, as they see value in bringing about positive change.

Below are some of the different types of sustainable investors in the marketplace:

1. Development banks that serve lower-income communities
2. Pension plans that support environmentally-conscious corporations
3. Religious institutions
4. Non-profit foundations
5. Socially-conscious individuals

Environmental, Social, and Governance (ESG)

The three main subheadings under sustainable investing are environmental, social, and governance. They represent the different types of investment areas that fall under sustainable investing.

Environmental investments closely examine the way a company considers non-renewable resources, climate, and the move toward clean energy.

The social aspect of sustainable investing looks at causes that consider human rights and diversity concerns. They include topics like gender equality and support for underprivileged communities.

The governance aspect of sustainable investing looks to companies that promote business ethics, as well as trust, transparency, and compliance in the marketplace. They are companies that perhaps make ethical business practices one of their top priorities. In such companies, ethics are a central focus, and profits are not the central theme of their corporation or institution.

Ethics is an increasingly relevant topic in the world of business, as the way corporations conduct themselves as global actors is seen with increasing importance. Unethical labor practices overseas are often met with negative media attention and are often the cause for consumer and investor uproar towards management and leadership. The topics attract investors because they see the positive influence their investments can have on the marketplace.

Additional Resources

CFI is the official provider of the Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

• Introduction to ESG
• Corporate Social Responsibility (CSR)
• Morningstar Sustainability Rating
• Income Investing
• Voluntary Simplicity
• See all ESG resources
• See all capital markets resources