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Finances
Why Sustainable Investing is Smart Investing
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BY JESSICA ROBINSON
First things first … The COVID pandemic has taught us how interconnected we are. But at the same time, it has reminded us of the glaring inequalities that we face. As we look beyond the pandemic, it is clear that there are global challenges, such as climate change, that we must solve together.
To build a better and brighter future, we need to utilize all levers of change. This is where money comes in. Money—or rather, how we invest our money—is a hugely powerful tool at our disposal. Through sustainable investing, we can use our money and our investment decisions to bring about positive change in the world. But sustainable investing isn’t just the right thing to do, it’s also the smart thing.
THE LOWDOWN—WHAT IS SUSTAINABLE INVESTING? As we know, investing is allocating money to something in the expectation of some benefit in the future. Historically financial returns have been the end game. You invest money in the hope that you will reap higher financial returns in the future. However, our thinking on investing has started to dramatically shift. Over the last decade or so, more and more people have begun to look beyond financial returns. Today we see an increasing number of investors wanting to achieve positive change in an area they are passionate about, and invariably this has a social and/or environmental dimension.
LET’S GET SPECIFIC In its purest form, sustainable investing is an investment discipline that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact. To be clear, sustainable investing is not philanthropy or charity. Sustainable investors are still looking for financial returns, but they seek other impacts at the same time. For the environment, an investor may look at what impact a company has on the resources that sustain it. They may
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look at the company’s contribution to climate change—say, GHG emissions. Or, the investor may seek out companies looking to solve the climate challenge, such as clean energy or climate tech companies. On the social aspect, investors are increasingly thinking about how companies translate their role in society—for example, how a company treats its suppliers or the local communities it operates in. A sustainable investor would be concerned about labor standards and illegal child labor. A sustainable investor would also care about issues like diversity and gender equality within the companies that they invest in.
WHY DOES THIS MATTER NOW? The harsh reality is that the world faces some pretty big and challenging issues. Our air is polluted, so is our water, our natural resources are rapidly depleting, biodiversity is under threat. At the same time, about one in five people in the developing world live below the extreme poverty line. And yet our throwaway consumer culture means that every year if we put all that waste on trucks, they could go around the world 24 times. We need to do something about it, and we need to take action soon. The good news is, when we think about our future direction of travel, investing to address the societal and environmental challenges we face is also a smart investment choice. Take, for example, the Sustainable Development Goals, a collection of 17 interlinked global goals designed to be a "blueprint to achieve a better and more sustainable future for all." The SDGs represent the closest thing we have to a global strategy; it’s our action plan for the future. It seems unlikely that companies not aligned with the SDGs will
