This blog was originally written by our KorePartners at Raise Green. View the original post here.
OK, How Does Sustainable Investing Work?
Some investors seek to make a positive social and environmental impact with their investments and thus, they don’t simply look at the companies who will make them the most money from the get-go. Rather, they seek those companies who are working tirelessly to address a vast array of societal problems. As a result, sustainable investing is also referred to as socially responsible investing (SRI) or ESG investing, as it encompasses the idea that the investor is strongly influenced by environmental, societal, or governmental factors, before contributing money to a particular company. With this type of investment, people are seeking not a short-term financial return, but a longer-term financial return in which their money is being used as a medium for societal progress, environmental impact, and corporate responsibility. In fact, financial return goes hand in hand with ESG progress, as companies with stronger ESG profiles may generate more sustainable profit and cash flow because they tend to be more competitive than their peers (“ESG factors and equity returns – a review of recent industry research,” 2021). Sustainable investing places increasing emphasis on how investments contribute to the good of society, irrespective of how much money was made in the short run.
Sustainable Investing Objectives
Sustainable investing, as a catalyst for societal change, has seen it’s popularity rise in recent years in the face of the climate crisis and compounding social issues. Impact investing serves as one of the catalysts, alongside millennial investors driven by principles, that is lighting a fire under investors to invest their money in companies whose “intrinsic values” drive positive change (“What is Sustainable Investing?,” HBS). Sustainable investing pushes companies to embrace sustainable principles, which can lead to more impactful social and financial returns later on. With respect to Raise Green, sustainable investing is particularly crucial, especially within the context of environmental factors that investors look for in companies to contribute to money. The realm of environmental factors focuses on the impact that a company will have on the environment, such as its carbon footprint, waste, water use and conservation, and clean technology.
Growing Investment Opportunities
Furthermore, this marketplace for sustainable investing is only growing. The United States’ Forum for Sustainable and Responsible Investment identified $17.1 trillion in total assets under management at the end of 2019 using one or more sustainable investing strategies, a 42 percent increase from the $12.0 trillion identified two years prior (“Sustainable Investing Basics,” USSIF). This type of investing has become more desirable because “investors do not have to pay more to align their investments with their values, or to avoid companies with poor environmental, social or governance practices” (“Sustainable Investing Basics,” USSIF). Therefore, with sustainable investing, investors can propagate social impact without losing money. As a whole, sustainable investing is important because it can help contribute to vast infrastructure changes needed in our society to tackle the challenges we face. It allows us to move towards a better and more sustainable future.