Do you care about the environment and social values? You would wonder in knowing how social values can be incorporated while investing money and retirement savings. The concept of sustainable investing comes from social and moral values toward society. It allows investing money to fulfil the social values which are in line with the social beliefs and core values of individuals. Sustainable investment includes the environment, social and corporate governance (ESG) criteria in an individual’s portfolio or retirement savings portfolio. Two decades ago, ESG investing was a niche topic for professional investors. The trend of sustainable investment has picked up speed with a number of sustainable investments such as the setting up of the Sustainable Investment Forum and the UN-backed Principles for Responsible Investment (PRI).
The main goal of sustainable investment is to make money while doing good for society. Several studies have evidenced the positive influence of sustainable practices on investment performance. Among the most popular way of sustainable investing strategies is investing in “green” ETFs. Investment in Green ETFs supports the companies in environment-friendly businesses. Another way of sustainable investment strategy is to invest in sustainability index funds. These are index funds that include only ESG criteria screened companies. Sin stocks such as alcohol, tobacco, gambling etc. are being excluded from the sustainability index funds.
The other popular way of sustainable investment strategy is through actively managed funds. Managers of the companies are identifying socially responsible companies with attractive valuations and high potential returns or outperforming in the market. Sustainable investment opportunities continue to grow as ethically conscious companies. For investing in such companies, it is required to focus on the investment goal considering the potential return. Ultimately, ESG investing helps to support the capital for good use which will positively contribute to a better world and also a sound sustainable future. Apart from this, sustainable investment serves the companies and investors sustainable efforts and also mandates addressing the challenges facing the world in a way to fulfilling the Sustainable Development Goals. (SDGs). The investment strategies should be framed which will build economic growth along with addressing the social needs while tackling climate change and environmental protection.
The introduction of the world’s first country stewardship code, unveiled in the UK by the Financial Reporting Council encouraged the investors to deepen their interaction with the investee companies on various strategic issues. As per 2021 FTSE, the PRI member institutions assets under management have risen 600% in the past decade to over $80 trillion. ESG investing can help to put capital to work and positively contribute to a better world and a more sustainable future. Nowadays institutional investors have more tools to help social investments into their investment plans than ever before. The industry will continue to promote transparency and disclosure in the portfolios of asset owners and their investment managers worldwide. Studies have also evidenced that sustainable investing performs better than traditional funds.Author - Dr Avani Shah, Assistant Professor