In recent years, sustainable investing has been dubbed one of the most significant trends on Wall Street, and it’s only expanding. Still, bigwigs and individual investors alike need to know that it’s far more than just “green jargon” or a new financial buzzword.
Sustainable investing has real value and could be the key that unlocks the door to economic stability and societal well-being.
Knowing the comprehensive data, information about ecological impacts, and evidence of societal benefits can help you understand why allowing ESG factors to influence your investment decisions is wise. Not only does it bring robust financial returns, but it can also save the planet and the humans who call it home.
In the face of grave challenges, a paradigm shift in how we invest has arrived. Find out why what society does today will shape the world for many generations to come.
What Is Sustainable Investing?
Sustainable investing is the practice of incorporating ESG factors into your investment decisions.
While many investors focus only on the potential for a stock to return a profit, many investors, like Cyrus Nikou of Atar Capital, are committed to investing responsibly for the benefit of future generations. This type of sustainable investing takes on a more holistic approach, looking at the following data:
- Environmental: How do companies manage their carbon footprint and the impact their emissions, waste, and resource usage make on the planet?
- Social: How do companies treat employees and clients? Where do they stand on human and civil rights issues, and how does that affect the supply chain?
- Governance: Are companies transparent about their business dealings? Do they have structures in place for accountability? Is there diversity in leadership?
For a growing number of investors, these factors determine which companies deserve your money and which still have work to do to be worthy of your investment.
Why Is Sustainable Investing So Critical in This Day and Age?
While not everyone is on board with the idea of sustainable investing, it is undeniably critical that the investment world continues to move in this direction. The following five points will explain why every investor, large or small, should consider ESG factors when deciding where to spend their investment funds.
Dual Goals
Sustainable investing achieves the dual goals of caring for and about the planet and increasing profits for shareholders. Data shows that ESG index funds, which have tripled since 2008, tend to outperform the market, even in economic downturns.
This performance can be illustrated by the fact that the MSCI KLD 400 has achieved annualized returns of 10.2% since 1990, a full 45 basis points higher than the S&P 500.
Investor Influence
Companies in every sector are united by one mission — to follow the money. The more money that goes into sustainable investing, the more companies will strive toward sustainability and transparency.
Most businesses listen intently to what their investors want because those investors affect their ability to grow. In this way, sustainable investing influences a business’ sustainability practices, positively impacting the environment and everyone in it.
Market Stability
Sustainable investing is all about creating deeper connections between clients and their investing habits. Investing based on personal values is better for the long-term health of both companies and the greater investing landscape because it brings an increased sense of stability to the market.
Investors are no longer buying and selling solely based on stock prices and potential returns. Instead, they stick with companies for the long haul because of the way those companies align with their value system.
Regulatory Changes
Sustainable investing often drives regulatory changes. When lawmakers know their constituents care about sustainability issues and these values may affect the market, they’re more likely to bring ESG-related bills to the congressional floor.
When legal changes occur, it then compels companies to shift their behavior toward better ESG practices or risk hefty penalties, something no company wants to face.
Considering the Future
Sustainable investing is forward-thinking and supports companies in creating a better world for future generations. Businesses that focus on creating products reliant on renewable energy need all the funding they can get to move their agenda forward. Sustainable investment practices ensure they get those resources.
Sustainable Investing Is Here to Stay
Sustainable investing isn’t just a fad. It’s a phenomenon that’s here to stay and undoubtedly deserves considerable attention from all corners of the investing world.
Though some stakeholders oppose it because they feel it gives investors too much power to sway a company’s decisions based on opinions or baseless claims, evidence shows that the benefits of sustainable investing far outweigh any of these potential issues.
Not only can sustainable investing result in greater profits over the long run, it could also save the planet from ruin. The more people invest responsibly, the more critical ESG issues get the attention of lawmakers and business leaders. As they begin to right the ship, critical changes are made, and sustainability is achieved.
When society commits to sustainable practices in all areas of life — including investing — everyone across the globe will reap the rewards.
