What is sustainable investing?
Sustainable investing is the practice of considering the environmental, social, and governance (ESG) impact of a company when choosing where to invest. The practice began as early as the mid-20th century when investors began avoiding corporations involved with activities they did not support, such as tobacco companies, casinos, firearms manufacturers, etc. However, it now involves not only avoiding companies with unethical environmental and social practices but also actively investing in companies focused on sustainability and providing solutions to environmental and social issues, such as green sources of energy or meat substitutes.
As issues of sustainability and climate change have become more pertinent, investing sustainably and ethically has become more popular. In 2006, the United Nations Principles for Responsible Investment was launched, and investing sustainably has gained even more supporters since then. Many firms have assembled socially conscious portfolios with ESG criteria that investors can choose to invest in, and entire banks have been started with the purpose of investing in sustainable and ethical companies. In 2019 alone, over 21 billion dollars were invested in sustainable funds, and in 2020 the number nearly doubled with 51 billion dollars in sustainable new investments.
The 13 UN sustainability goals negatively impacted by the pandemic.
The global growth in sustainable investing, with Europe leading the way.
Why should companies and investors make sustainability a priority?
Sustainable investing does not only promote positive environmental and social change, it can also be financially lucrative. According to Morgan Stanely, sustainable portfolios perform just as well as or better than traditional funds, and they show less deviance during market disruptions. This was especially important during the COVID-19 pandemic, which triggered a significant market crash in March 2020. Sustainable funds performed better during the pandemic, and socially conscious investing became even more popular as the pandemic raised awareness about certain environmental and social issues, such as worker’s rights. In April and May alone there was an over 8.5 billion dollar influx in sustainable investments. The COVID pandemic has also encouraged corporations to focus more on long-term resilience, which often coincides with establishing more sustainable business practices.
The performance of sustainable funds during the COVID-19 pandemic is representative of a larger shift towards sustainable and ethically conscious investing. Entrepreneurs that are starting and building businesses should see this as a financial motivator to make sustainability a focus of their company. Rather than serving as a hindrance to profit, which may have been the case in the past, these trends demonstrate that sustainability is financially advantageous. Making sustainability a focus of your business may make it more attractive to potential investors, as well as make your business more financially stable and resilient.
As for investors, there are many ways that you can invest sustainably. Exchange-traded funds and index funds allow you to weed out companies with questionable practices or seek out companies that align with sustainable solutions that you are most interested in. All in all, investing sustainably is a profitable way to create a positive impact on people and the planet.