But what is sustainable investing?
Sustainable investing means combining the best tools of traditional investing with other factors like the social or environmental impact of a business. For investors, this translates into investing in companies with the intention of generating social or environmental benefits along with financial returns. It helps investors align their financial goals with what matters most to them.
Without going into details, the main sustainable investing strategies are ESG investing, ethical or negative exclusions, and impact investing.
ESG investing is considered a lighter shade of green. It is a strategy that primarily relies on companies’ environmental, social, and governance policies and processes scores calculated by specialist third-party agencies.
Portfolio managers or retail investors who adopt an ethical or negative exclusions strategy will exclude companies engaged in activities considered unethical (such as alcohol, weapons, or tobacco) or that are contrary to international conventions from their portfolios.
Impact investing is considered the darkest shade of green because this strategy consists of investing exclusively in companies whose mission is to contribute to positive environmental and social outcomes.
Green is the new black
Sustainable investing is no longer a niche trend. In fact, in recent years this trend has accelerated both among institutional and retail investors.
In December 2020, CNBC reported that assets managed with environmental, social, and governance concerns had continued to surge. Between 2018 and 2020, in the US alone, sustainably invested assets under management, both institutional and retail, grew 42%, to $17.1 trillion, making one-third of the 51.4 trillion dollars in total U.S. assets now under professional management.
The reasons for such growth?
Global sustainability problems are becoming more evident by the year, while investors are growing more aware of the risks these issues bring with them. At the same time, the continuously improving availability of data and analytic tools makes it easier to scrutinize the behaviour of companies and better rank them in ESG terms.
Researchers have also mentioned the Paris climate accord, adopted in 2016, as an event that sensitised more and more investors to think sustainably. Finally, more studies are emerging, suggesting that investors don’t have to give up on their returns to work towards positive societal outcomes.
Is sustainable investing profitable?
Despite the great interest in sustainable investing, there are still many fears that investing according to one’s values means earning less. Obviously, we can’t lose sight of why we’re investing in the first place.
So what are the returns on sustainable investment like?
Different research shows that sustainable investing allows investors to achieve positive impact at comparable risk levels and with comparable returns.
For example, in its August 2019 report Sustainable Reality, Morgan Stanley concluded that sustainable funds provided returns in line with comparable traditional funds while reducing downside risk. They added that “during a period of extreme volatility, we saw strong statistical evidence that sustainable funds are more stable. Incorporating environmental, social, and governance (ESG) criteria into investment portfolios may help to limit market risk.”
ESG investing on BUX Zero
If ESG investing is something that interests you, you will find various ETFs on BUX Zero, that only invest in companies complying with high Environmental, Social, and Governance standards. For a detailed overview of each of them, read our other articles.
Not sure what ETFs are? Check out our ETF Learning Center.
All views, opinions, and analyses in this article should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.