The global shift towards sustainable investing

NNatalie January 18, 2024 7:01 AM

In recent years, we've witnessed a global shift in the financial world – a move towards sustainable investing. This refers to the practice of making investments in companies and funds with intentions that go beyond just financial returns. The goal is to achieve a positive impact on society and the environment alongside generating financial returns.

Understanding sustainable investing

Sustainable investing, also known as socially responsible investing or impact investing, involves considering environmental, social, and governance (ESG) factors before making an investment decision. These could include a company's carbon footprint, labour practices, or corporate governance practices.

In addition to these, there are investment tools like green bonds, which are designed to finance projects with positive environmental benefits. The proceeds from these bonds are typically used to fund renewable energy projects, waste management solutions, and other green initiatives.

The growth of sustainable investing

The growth of sustainable investing has been remarkable. One key driver of this trend is investor demand. More and more investors are becoming conscious about where their money goes and the impact it has. They're not just interested in the financial returns, but also the societal and environmental impact of their investments.

Here's a quick look at some statistics reflecting the global growth in sustainable investing:

Year Global Assets in Sustainable Investing (in trillion USD)
2015 22.89
2016 23.45
2017 30.68
2018 34.27
2019 40.5
2020 53.7

Source: Global Sustainable Investment Alliance

How to start with sustainable investing

Starting with sustainable investing involves a little more due diligence compared to traditional investing. It's important to understand the ESG factors and how they can impact the performance of your investments.

Here are a few steps to get started:

  1. Understand ESG factors: These factors play a key role in sustainable investing. Environmental factors include a company's impact on climate change, natural resource conservation, and pollution. Social factors consider how a company treats its employees, suppliers, customers, and the communities where it operates. Governance factors encompass a company's leadership, executive pay, audits and internal controls, and shareholder rights.

  2. Research: Look for funds or securities that align with your values and ESG criteria. There are numerous resources available online to help you understand and evaluate sustainable investments.

  3. Consult with a financial advisor: A financial advisor who specializes in sustainable investing can provide guidance tailored to your specific situation and goals.

  4. Diversify your portfolio: As with any type of investing, it's important to diversify your portfolio. This helps spread the risk and potentially increase the returns.

While sustainable investing presents a unique set of challenges, the potential benefits make it a compelling option for anyone looking to make a positive impact while earning returns on their investments.

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