What is Sustainable Investing?
Sustainable investing isn’t a feel good exercise. Rather, it’s an investment approach designed to maximise investment returns. It recognises that economic, health, environmental, social and governance factors can impact a company’s long-term performance and therefore must be systematically integrated into the investment process. For example, if fossil fuels are eventually going to run out, then it makes sense to start analysing car firms in terms of their carbon intensity.
Sustainability themes
Some of the themes often considered in the sustainability analysis of companies:
- Climate change – the effect of global warming and associated regulation.
- Pandemics – how pandemics such as HIV, diabetes and obesity will affect a company’s bottom line.
- Human resources – staff acquisition, retention strategies and corporate culture.
- Corporate governance – a company’s ability to manage checks and balances and the relationship between shareholders and management.
- Stakeholder management – how well a company engages its relationship with suppliers, clients and the community.
- Future licence to operate – ability to respond to future regulation changes.
Are sustainable investments different to ethical or socially responsible investments?
Sustainable investing is fundamentally different to
ethical investing or socially responsible investing. Ethical investing often involves the screening of companies from what are often called ‘sin’ industries, such as tobacco and gambling, based on the moral convictions of the investment manager. Many people believe this negative screening process forces an unacceptable trade-off between ethical criteria and investment returns.
Other websites of interest:
The Sustainable Investment Research Institute (SIRIS)