A Sustainability Synonym: What is ESG investing?

This article offers insights into sustainable investing and the concept of ESG (Environmental, Social, and Governance) factors. It covers various sustainability-related terms, explains ESG, impact investing, and how ESG factors are used.

An Introduction to Sustainable Investing and Sustainability Synonym related Definitions

Definition and sustainability synonym

Certainly, I have heard of these sustainability synonym terms related to ESG investing:

• Sustainable investing
• Environmental-friendly investing
• Socially responsible investing
• Green investing

Sustainable investing is an investment strategy that considers ESG factors alongside traditional financial data when making investment decisions. It has been gaining popularity among investors who seek to align their investments with their values and have a positive impact on the world. While there is no universally accepted definition for sustainable investing, efforts are being made through regulations like the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy to provide more precise definitions.

Why does it matter?

According to a report by PwC in October 2022, sustainable assets under management (AUM) reached a global total of $18.4 trillion in 2021, accounting for 21.5% of all assets. This trend is expected to continue as investors are increasingly aware of the environmental and societal impact of their investments. The growth prospects for sustainable investments are significant, with ESG-oriented assets projected to increase in the USA from $4.5 trillion to $10.5 trillion by 2026.

What is this article about?

This article delves into the essence of ESG and sustainable investing, covering its definition, significance, and integration into investment strategies. As sustainable investing gains traction, understanding its fundamentals and its role in a diversified investment portfolio becomes crucial.

What is the meaning of ESG investing?

Sustainable investing, also known as ESG investing or socially responsible investing, involves considering environmental, social, and governance factors in the investment process. The term "sustainable" is challenging to define precisely, but it generally focuses on companies that prioritize sustainable practices. Regulators are working to establish a common framework for the term.

Investors assess various ESG factors, such as environmental impact, labor practices, community engagement, and governance, to invest in companies that create a positive impact on the world and embrace sustainability.

Sustainable investing is essential as it allows investors to align their values with their investments, mitigate risks, and seize long-term opportunities. It also addresses critical issues like climate change, human rights, and fair labor practices, contributing to a more sustainable future for all.

The three pillars of ESG investing

Exclusions or negative screening is a common practice in socially responsible portfolios. There are three types of negative screening criteria:

• Norms-based: Excludes companies violating international treaties on controversial weapons like cluster munitions, chemical weapons, and nuclear weapons.
• Values-based: Excludes companies with significant revenue from industries like tobacco, gambling, adult entertainment, coal mining, and arctic oil and gas.
• Business-conduct: Monitors companies violating international norms and may exclude them depending on their response to change.

Best in Class ESG Approach:

The "best in class" ESG approach involves selecting investments based on the highest ESG standards within a sector. It aims to invest in companies with strong ESG practices, believing they will achieve long-term financial success and stability. This approach aligns investments with values and seeks positive impact.

Impact Investing:

Impact investing focuses on generating measurable, positive social and environmental impact alongside financial returns. It involves investing in companies, organizations, or funds working to address global issues like poverty, climate change, and healthcare. Sectors include renewable energy, clean technology, and microfinance, among others. Impact investing is often achieved through private equity, infrastructure, or venture capital funds.

Summary and Conclusion

The article discusses sustainable investing and its synonyms, its increasing popularity, and the importance of ESG criteria. Sustainable investing aligns values with investments and can lead to positive social and environmental impacts while achieving competitive financial returns. It complements traditional investing, allowing informed decisions that align with values and goals.