Sustainable investing has become increasingly popular in the last few years. From initial investment offerings to new ethical funds being launched by a number of asset managers, sustainable investing continues to gain traction among investors.
Sustainable or responsible investing is an umbrella term for several types of investments that emphasize positive social and environmental impact alongside financial return.
In this article we cover everything you need to know about sustainable investing, why it’s important, and how you can implement them in your own portfolio.
What Is Sustainable Investing?
Sustainable investing is an investment approach that incorporates environmental, social and governance (ESG) factors into investment decision making, and sometimes also includes considerations of the impact of a fund’s management on its investors.
The best way to think about sustainable investing is: it’s investing that takes into account non-financial factors like human rights, labor practices, or environmental impact alongside financial return.
Why is Sustainable Investing Important?
The explosive rise of sustainable investing over the last decade can be attributed to several factors.
Firstly, a growing awareness of the importance of social and environmental considerations in financial decision-making is one of the most significant developments in the investment landscape in recent years.
Millennials are the largest generation since the baby boomers. They are also more financially savvy than any other generation and more concerned about social issues than previous generations. By some estimates, millennials currently possess $10 trillion in investable assets and will control over $30 trillion in assets by 2030. These are the world’s largest single generation of investors and they are targeting a growing range of sustainable investments.
Secondly, investors have become more aware of the importance of positive social and environmental impact. This awareness was accelerated by the financial crisis of 2007, which marked the beginning of a decade of low financial returns across many asset classes.
Investors are also shifting their focus away from short-term profits to long-term sustainability. They’re willing to ride out the ebb and flow of the volatile business landscape as long as they are using their money for good.
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How to Implement Sustainable Investing?
There are several ways you can implement sustainable investing, and each fund type may have slightly different criteria for what makes an investment “sustainable.”
To select sustainable funds, investors can look for funds that invest in companies that have good social and environmental records, or invest in a certain sector. Some examples of sustainable investing include:
- Investing in ethical funds: Ethical funds are designed to have a positive social or environmental impact alongside financial return, investing across multiple asset classes to maximize positive impact.
- Investing in ESG funds: ESG stands for Environmental, Social and Governance, and funds that invest according to ESG standards have environmental, social, and governance criteria that they adhere to.
- Investing in sustainable companies: Sustainable companies are those whose operations’ practices align with sustainability and social good goals.
Sustainable investing can be an important way for investors to make a positive impact on the world while also earning a solid financial return. And as you might have learned, sustainable investing comes in a wide variety of forms, and can be implemented in a variety of different ways.
All in all, choosing a sustainable investment strategy is a great way to diversify your portfolio and make sure that your investments are responsible, ethical, and environmentally friendly at the same time.
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