Invest Responsibly: A Guide to Sustainable Investing

sustainable investing

Did you know 73% of global investors think about ESG issues now? This includes environmental, social, and governance topics. This is a big change, showing a move towards investing responsibly. People are aiming for profits while also doing good for society and the planet. They do this by blending ESG with finance plans.

Responsible investing is about taking active steps and creating funds for the long term. The UN’s Principles for Responsible Investment (PRI) help investors build portfolios that tackle big world issues. They also match personal values and green goals. Big names like Harvard University are getting behind this. They aim to cut greenhouse gas emissions to zero by 2050.

Adding ESG aspects to investing is smart both ethically and financially. Big events, like the Vale dam collapse and the COVID-19 pandemic, highlight this. If you don’t consider these factors, you could face big losses. There are also more rules pushing the finance world to help solve global issues.

Key Takeaways

  • 73% of global investors now factor in ESG issues when investing.
  • Responsible investment blends financial returns with positive societal and environmental impacts.
  • The Principles for Responsible Investment provide a framework for creating sustainable portfolios.
  • ESG compliance can mitigate risks, evidenced by incidents impacting market returns.
  • Institutions like Harvard University are leading with commitments to sustainable investment practices.

What is Sustainable Investing?

Sustainable investing is when you consider the environment, social issues, and how a company is managed before investing. The goal is to make money in the long run while also helping society. More investors are choosing this path to match their beliefs and support sustainable growth.

Definitions and Overview

Sustainable investing looks at the impacts an investment has on people and the planet. It includes ESG investing, where companies are picked based on ethical and environmental grounds. In 2020, 14 out of 17 ESG-focused ETFs did better than the stock market. This shows how smart investments can also do good.

Types of Sustainable Investing

There are several methods under sustainable investing:

  • Negative/Exclusionary Screening: Avoiding investments in companies or industries that don’t meet set ethical rules, like tobacco or fossil fuels.
  • Positive/Best-in-Class Screening: Choosing companies that excel in ESG areas compared to others.
  • Activist Investing: Working with companies to change and improve their ESG practices actively.
  • Impact Investing: Putting money in projects or companies that not only make money but also do good for society or the environment.

In 2020, we saw the launch of 23 new ESG funds, showing more and more people are interested in these kinds of investments.

Common ESG Factors

Looking at ESG factors means checking how a company treats the earth, people, and its own governance:

Dimension Common Factors
Environmental Climate action, resource efficiency, pollution control
Social Human rights, racial diversity, employee health and safety, community engagement
Governance Corporate governance, management practices, executive compensation, shareholder rights

By looking at these aspects, investors can pick companies that are doing well for everyone. This way, they aim to make positive impacts in society and the environment, as well as making a profit.

There’s a growing need for experts in sustainable investing. Organizations like the CFA Institute are planning to include more ESG topics in their teaching. Getting advice from financial experts who understand ESG can help you invest in ways that match your values. This all helps in promoting more sustainable investing.

Why Invest Responsibly?

Responsible investing is key for better financial performance and tackling sustainability issues. Today, investors know ESG matters can greatly impact market returns. Big events like the Vale’s dam collapse and Wirecard’s insolvency highlight this.

Investor demand is a big reason for the push towards responsible investing. People want their money to reflect their values without sacrificing profit. The Principles for Responsible Investment (PRI) guide on ESG includes methods like active ownership and teamwork. These tie in closely with their responsibilities. Plus, getting involved with stakeholders and voting on issues shows the value of strong governance for future earnings.

Rules and laws are also changing to help this movement. More and more, companies must show their ESG efforts, thanks to new mandates. These changes link the finance world directly to fighting climate change and eradicating modern slavery. Plus, some places now make it a must to blend sustainability goals with financial ones, boosting the importance of ESG in investment choices.

Research backs the relationship between good ESG practices and financial success. For those investing, considering ESG factors might mean better returns over time. The financials and the wider impact on the planet that investors aim for are becoming more and more linked. This makes responsible investing a smart and essential move in today’s ever-changing investing world.

  • The PRI Principles for Responsible Investment emphasize ESG incorporation and active ownership.
  • ESG factors such as climate change and human rights are crucial for informed investment decisions.
  • Regulations demand more transparency and disclosures related to ESG issues.
  • Client demand is pushing for investment practices that align with personal values and ethics.

Understanding ESG Criteria

For investors who want to invest in sustainable ways, knowing ESG criteria is key. ESG stands for environmental, social, and governance. It looks at how a company deals with nature, its people, and how it’s run. This helps investors pick companies that care not just about profits, but also about people and the planet.

Environmental Factors

ESG cares about how companies treat the planet. This includes their impact on the climate, how they use resources, handle waste, and fight pollution. Some investors, such as Trillium Asset Management, avoid putting money in coal and nuclear. They do this because these industries harm the environment. By choosing companies that protect nature, investors support a cleaner, safer planet.

Social Factors

When looking at ESG, social responsibility matters too. This involves checking how a company treats its workers, values diversity, and helps communities. Ethical investing, like focusing on social justice, aims to make the world better. Investing in companies that value social aspects helps create a fairer society.

Governance Factors

Good leadership and ethics are critical in ESG. It looks at how a company’s top leaders are paid, if they are ethical, and if they protect rights. Companies that are transparent and act responsibly earn trust from investors. They are more likely to face difficulties well and achieve success in the long run.

ESG Criteria Key Focus Areas
Environmental Factors Climate Change, Resource Depletion, Waste Management
Social Factors Employee Rights, Diversity, Community Impact
Governance Factors Management Quality, Corporate Ethics, Shareholder Rights

Principles for Responsible Investment

The Principles for Responsible Investment (PRI) aim to make investing more ethical worldwide. They focus on including environmental, social, and governance (ESG) issues in how money is invested. Over 4,900 financial groups joined PRI by March 2021. They manage over $121 trillion in assets. This big group is working together to make the global financial system more sustainable. They follow six key principles to guide their actions.

Principles for Responsible Investment

The Six Principles

The PRI has set six principles for investing responsibly. Companies that join the PRI promise to:

  1. Think about ESG issues when making investment choices.
  2. Take part in companies they invest in and consider ESG in how they do business.
  3. Ask for clear info on ESG issues from those they invest in.
  4. Encourage others in investing to follow these principles.
  5. Cooperate to get better at using these principles.
  6. Tell how well they are doing in following the PRI principles.

Following these principles helps PRI members make better investments. They also help solve ESG issues and support practices that are good for the environment and society.

Global Frameworks

Besides the six principles, PRI members are asked to match their work with global guidelines. These include the United Nations’ Sustainable Development Goals (SDGs) and the Paris Agreement on climate change. These larger plans help investors set goals that lead to a better world. They focus on things like cutting carbon emissions, fair treatment for everyone, and better business behavior.

Standard Life is a company that fits in well with PRI’s goals. They look at ESG factors to understand both risks and chances, such as those in the car industry. They pay special attention to the effects of new EU rules against pollution. This shows they aim to be a part of creating a better future.

The PRI brings together investors to share good ways to invest responsibly. By focusing on ESG, these investors work toward their own success and a more sustainable financial world together.

Since 2014, the PRI Academy has been training thousands of people from nearly 90 countries. As of March 2022, over 4,800 groups from more than 80 countries have signed up to PRI’s principles. Together, they manage about $100 trillion in assets. This shows a big worldwide effort for responsible investing.

Investment Options for Sustainable Investing

Investors are now seeing the value of sustainable choices more and more. They can pick from different options that care about ESG factors. This includes mutual funds, ETFs, owning stocks directly, and investing in communities. Each choice lets you make money while helping the planet and society.

Mutual Funds and ETFs

Mutual funds and ETFs are being seen as great for green investing. For instance, as of 2022, the US SIF Foundation pointed out 645 investment companies worth $1.2 trillion were all in on green. This diversifies your investments and puts your money in various companies that are ethical. For example, The Change Finance U.S. Large Cap Fossil Fuel Free ETF doesn’t invest in fossil fuels. Meanwhile, the Calvert U.S. Large Cap Core Responsible Index Fund picks investments by themes and ESG scores.

Direct Ownership of Stocks

If you like owning individual stocks, you can choose companies that are leading in sustainability. This is a way you can vote for what you believe in. Between 2020 and mid-2022, many big investors called on companies to do better, with a total of $3.0 trillion in assets. One big case was when Engine No. 1 voiced changes at Exxon Mobil to be more eco-friendly.

Community-Oriented Investments

Investing in communities is another path to go green. By early 2022, 1,359 community investment groups handled $458 billion. These groups work on local development, finance for all, and grow local economies. For instance, the W.K. Kellogg Foundation works for good in communities, while Harlem Capital Partners picks companies that do well by being ethical, known as positive screening.

Investment Option Strategies Used Example Funds
Mutual Funds & ETFs Negative Screening, Thematic Investing, ESG Integration The Change Finance U.S. Large Cap Fossil Fuel Free ETF, Calvert U.S. Large Cap Core Responsible Index Fund
Direct Stock Ownership Shareholder Voting, ESG Criteria Review, Corporate Engagement Engine No. 1
Community-Oriented Investments Impact Investing, Positive Screening W.K. Kellogg Foundation’s Mission Driven Investment, Harlem Capital Partners

Getting Started in Sustainable Investing

Starting in sustainable investing means thinking about why it’s important to you. It’s about how you can invest in ways that match your ethical concerns and create social and environmental impact. More and more, there are resources to help you do this. For instance, the use of ESG factors in managing investments shot up by 42% in the United States between 2018 and 2020, reaching $17.1 trillion. This increase shows that caring about where your money goes is becoming a bigger trend.

getting started in sustainable investing

Understanding why sustainable investing matters is key. About 85% of investors want their money to do good, with almost all young people feeling this way. Choosing to invest in companies that are good for the planet could lead to better earnings, say 86% of investors. Plus, 84% are eager to tailor their investments to their personal values.

The amount of these environmentally and socially aware investments is growing fast. From 2018 to 2020, the money individuals put into such investments jumped by 50%, to $4.6 trillion. This increase shows people are acting on their values by choosing ethical investments.

If you worry about your investments’ effects on the world, many others share your concerns. Sixty-four percent of those in 401k plans and the like worry about the ethics and social actions of the companies they’re investing in. And 74% of these people wish for more ethical investment choices in their savings, showing a widespread interest.

How to Assess Companies for ESG Compliance

Investors need to check if companies follow ESG rules. This is key for matching your investments with what’s right for the planet. They look at the company’s ESG reports and use third-party ESG scores to truly understand its actions.

Reviewing Corporate Reports

First, look at the company’s responsibility reports. These talk about how the companies handle ESG things. They set goals around saving the environment, promoting diversity, and being open. By studying facts like pollution, how they treat workers, and if their suppliers are fair, you can see if they’re doing good.

Third-Party Ratings and Resources

Outside ESG views help too. Groups like MSCI and S&P Global have rules for checking ESG issues. For example, MSCI gives scores based on how a company deals with ESG problems compared to others.

Let’s compare some major ESG rating systems:

Third-Party Organization ESG Framework Focus Areas
MSCI MSCI ESG Ratings Overall ESG risk management
S&P Global ESG Scores Environmental, social, and governance factors
Refinitiv ESG Scores Transparency and ESG impact
Morningstar Sustainalytics ESG risk exposure and management

Using these ratings and reports together gives a better view of a company’s ESG work. Pushing for clear ESG reports builds trust and helps investors make smarter choices.

Stewardship and Active Ownership

In today’s world of investing, being a good steward and actively owning shares is key. It helps drive better behavior from businesses. More than 5,300 groups worldwide support being a responsible investor by following UN guidelines. This shows a big effort to care about environmental, social, and governance (ESG) factors in how they own shares.

The focus on being a hands-on steward is getting more attention. Since 2010, when the UK started, over 20 places have made guidelines for stewardship. These offer tips for working with companies you invest in and voting on issues. The aim is to push for better and greener business actions by using investors’ power well.

Engaging with Investee Companies

Talking to the companies you invest in is crucial for being a good steward. In the last year, more votes were about green and ethical matters at US company meetings. Companies like Morningstar pointed this out. Big investors are now letting their clients vote on important issues directly. This shows how important it is for investors to guide companies towards doing good.

Public Reporting and Disclosure

Telling everyone what you’ve been doing and how you voted is part of responsible investing. More and more, people want to see clear reports on these efforts. For example, in a single year, Wellington held over 3,000 talks about various ESG topics. They also had a hand in many votes. Being open about these actions makes investors trust companies more. It shows what good can come from working together on these matters.

Working together can make a big difference. For instance, a well-organized effort helped change things at ExxonMobil. This shows that joining forces can be powerful, cut costs, and make reaching goals more likely. In the EU and UK, leaders are also making it easier for groups to work together on issues like climate change, removing any barriers.

Even private investors need to pay attention, as they are under more scrutiny now. They are being asked to make the world better through the companies they invest in. By being clear and actively involved, investors can really push for a world where companies are more sustainable and responsible.

Benefits and Challenges of Sustainable Investing

Sustainable investing is now a popular way to invest, moving from a niche to the mainstream. It’s picking up speed because people are more aware of global issues and want to invest in a meaningful way. The total value of such investments globally is over $30 trillion, showing it’s more than a passing trend. This shows that investing with a focus on sustainability can be good for the planet and your wallet.

One big perk of sustainable investing is good financial returns. Studies have shown that picking companies with sustainable practices and strong leadership can pay off in the long run. For example, the S&P 500 ESG Index has done better than the regular S&P 500 over the last decade.

Sustainable investments also help companies build a better image and connect with their communities. Consumers and partners may be more interested in what these companies do if they see them working on sustainability. Employees in these companies tend to be happier and more productive, which benefits everyone.

But, there are challenges too. One big issue is the lack of consistent measures and reports on sustainability. This makes it hard for investors to check a company’s green claims. Solving big problems like climate change and inequality needs everyone working together. For lasting success, investors need to be careful and choose investments that offer real, long-term benefits, not just green PR.

Younger people, like millennials and Gen Z, are making a big impact on ESG investing. A recent report by Morgan Stanley found that 99% of millennials are interested in ESG. And, 93% of all investors who think the economy is healthy want to invest in projects that help the environment.

Green bonds are an example of how sustainable investments can work. These are loans made to fund green projects, like more clean energy. They are a straightforward way to directly support good environmental actions.

In conclusion, sustainable investing has many benefits but also challenges. Key hurdles include agreeing on ESG standards and being transparent about how money is used. As more people invest this way, it’s vital to keep up with responsible and sustainable choices.

The Future of Sustainable Investing

The way we invest to support the planet is changing fast. People are putting their money where their hearts are. They want investments that do good and do well. Firms are meeting this need by offering more ways to invest in companies that care about the environment, social issues, and good governance. There are big signs that this is only the beginning of a major shift.

ESG investment trends

Industry Trends and Predictions

By the first half of 2023, about 8% of all invested money was in sustainable funds. Younger investors, like millennials, are leading this charge. They’re keen on putting their funds towards companies that support issues they care about. This interest is also catching on with younger U.S. generations, making sustainable investing even more popular. Private equity is turning towards these companies too, as this interest grows.

The world’s thirst for crucial minerals and metals is on the rise. Experts believe it could be up to six times higher by 2040. This demand calls for an investment of $70 billion every year until 2030. This intense interest highlights the importance of being smart about resources and making sure our energy use does not harm the planet.

Impact of Regulations and Policies

Laws and policies are changing how companies handle their environmental and social impact. For example, the EU is leading the way with a rule that makes over 50,000 companies talk about their eco-friendliness. This aims to make sure companies are being honest about their efforts and improve where they fall short. These measures help investors make choices that are good for the world.

Another big step is setting a price on carbon and making sure companies tell us how they treat people fairly. Plus, using new kinds of data to check on companies is becoming more common. The job market is also showing that the sustainable investing field is growing fast, with a notable increase in new hires in recent years.

As the ESG investing trend and these rules keep growing, we see hope for a greener and more responsible future. Mixing money with our beliefs and care for the earth is taking over the market. This change is promising a future where doing well in business also means doing good for the planet.


Sustainable investing combines financial gain with ethical duty, showing investors a path to support long-term sustainability. With $30 trillion moving from Baby Boomers to younger generations in 10-20 years, focusing on responsible investing is crucial.

Millennials are leading in Environmental, Social, and Governance (ESG) investing, especially in 401(k) plans. This shows a shift in society’s views. But, some experts still debate if ESG investing is real or just a trend.

Yet, ESG investing’s growth into ordinary investment checks and more open ESG reports is clear. These changes help investors make better choices. Since the 2000s, focusing on ESG factors has grown. Now, ESG investing is solid, with a big role in the investment world.

Sustainable investing looks at ESG along with money-based measures, allowing ethical financial choices. Key practice areas include managing carbon emissions and promoting worker diversity. As more in the investment world adopt these ideas, confirming data and spreading out risk will be key.

Looking ahead, blending ESG investment rules with responsible strategies will shape a new investing era. This lays the groundwork for a world where profits come with a positive social outcome. This way, our values support long-term sustainability and sound financial choices.

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About the author

Nathan Tarrant

Nathan has worked in financial services, marketing, and strategic business growth for over 30 years. He was the founder and COO of a Queens award-winning financial services company based in the UK, and a capital investment company in Virginia USA..

He operated as a financial & alternative investment advisor to delegates of the UN, World Health Organization, and senior managers of Fortune 500 companies in Geneva, Switzerland, after the 2008 financial crash.

As an avid investor, especially in alternative investments, he runs this blog, sharing his growing experience and views on alternative investments. You can see Nathan's full profile at his personal website
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