Sustainable investment (2024)

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. Investment throughESG (environment, society and governance)principles are part of sustainable investing and have become increasingly popular over the years.

Investors want to do their part to raise their capital from companies that take a long-term view of the impact of their practices on the environment and the world in which they operate. Sustainable investing using the ESG investment framework helps investors reach a new frontier. It offers a choice in the market with increasingly attractive opportunities for investors to grow their wealth or become personally involved in the pursuit of sustainable business practices.

Sustainable investing – the new frontier

Many funds and brokers are taking up the challenge of making choices that consider sustainable investment practices. The ideas and principles are finding their way into even some of the world's largest foundations and financial institutions, as the importance of such principles in society grows. Many capital providers are putting pressure on asset managers to adhere to stricter ESG investment standards.

Investors are looking forward to itexchange traded funds ETFsand certainties who adhere to such ideals are often not motivated solely by profit, but by the ethical urge to contribute financially to moving the world toward a more sustainable and ethical future for generations to come.

Value-based investing

Sustainable investing takes many forms. Whether it concerns the purchase of a share in a company that producessolar panelsor biofuel, or whether you participate in a joint loan fund, there are different methods for sustainable investing.

At its core is the desire to use money to create social change and goodness. The investor wants to promote environmental, social or management principles because he sees value in creating positive change.

Below are some of the different types of sustainable investors on the market:

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

Environment, social and governance (ESG)

The three most important subsections under sustainable investing are environmental, social and management. They represent the different types of investment areas that fall under sustainable investing.

Environmental investmentsClosely examine a company's views on non-renewable resources, the climate and the clean energy movement.

Ofsocial aspectof sustainable investments looks at causes that take human rights and diversity into account. This concerns topics such asEquivalenceand support for disadvantaged communities.

Ofmanagementaspectof sustainable investing looks at companies that promote business ethics, as well as trust, transparency and compliance in the marketplace. These are companies that may make ethical business practices one of their top priorities. In such companies, ethics are central and profit is not the central theme of their company or institution.

Ethics is an increasingly relevant topic in business, as the way companies behave as global players becomes increasingly important. Unethical labor practices abroad often receive negative media attention and are often the cause of consumer and investor revolt against management and leadership. The topics attract investors because they see the positive impact their investments can have on the market.

Additional Resources

CFI is the official provider ofcertification program designed to transform anyone into a world-class financial analyst.

To continue 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 investment
• Voluntary simplicity
• View all ESG resources
• View all capital markets resources