The Movement Towards Sustainable Investing

Business
Written By Guest User

Written by Julia Siiatski



With businesses starting to acknowledge that they should have a key role in preserving societies’ well-being, investors similarly are starting to look to contribute to positive social change through sustainable investing. 



So what is sustainable investing?


As outlined by Harvard Business School Online’s Business Insights Blog, sustainable investing considers Environment, Social and Governance factors prior to investing, with the ultimate goal being a positive ESG outcome and financial return. This type of investing is focused on how one’s investments will contribute to society at large instead of investors solely seeking short-term returns. More specifically, investing effectively could involve researching companies’ processes and reading their CSR reports to observe whether they have positive ESG contributions, prior to investing in them. For further explanation of the ESG factors, please refer to the table below that outlines the type of actions that each category is concerned with (1). 


Is sustainable investing relevant? 



I would argue that the relevance of sustainable investing will only grow in future years with greater restrictions and limitations being placed on businesses that do not operate on a sustainable framework. Some global movements towards these regulations could be observed in the recent 2021 United Nations Climate Change Conference - also referred to as the COP26. Key takeaways from this conference that were outlined by GreenPeace involved over 20 governments agreeing to halt the funding of fossil fuel development projects with public money, a pledge made to reduce methane emissions by 30% by the year of 2030 (this pledge was joined by 100 countries), and China and the United States agreeing to unite efforts in taking climate action (2). Even with the pledges made for 2030 in the COP26 Conference, the American news website Axios noted that an analysis conducted by the Climate Action Tracker revealed that dangerously high warming levels are still being enabled through the current-standing measures agreed upon by the countries (3).





How do businesses, banks, and venture capitalists approach sustainable investing? 



Businesses


The movement towards phasing out harmful emissions is still prominent, and one could observe that businesses are starting to factor COP26 measures into decisions made about who they want to work with. An example would be NEST (National Employment Savings Trust) dropping ExxonMobil and other energy companies as a result of these companies’ failures to address climate risk. Katharina Lindmeier, senior responsible investment manager for NEST, stated that one reason for doing so was COP26 stressing the need for immediate action to be taken by businesses. The firm also sold holdings of other companies, including Power Asset Holdings Ltd., Marathon Oil Corp., Korea Electric Power Corp., and Imperial Oil Ltd. (findings from Pensions & Investments - 4).



BlackRock is another assets manager that operates several funds aiming to be in line with ESG goals. One would include the ICS Sterling Liquid Environmentally Aware Fund, which is a fund that excludes companies involved in civilian firearms, fossil fuels and tobacco manufacturing. Pensions and Investments also reports that NEST recently transferred $261 million (US dollars) to this fund from the Aquila Connect Cash Fund (5). 



Banks


Banks are also starting to focus on sustainable investing. Currently, European assets are dominating in sustainable funds ($1.83 trillion) when compared to American investment funds. A reason for this could be the steps that European banks are taking to make sustainable investing more available. For example, the financial services company UBS has recently made it the default option to invest into sustainable funds for private-wealth clients (findings from Axios - 6).



Venture Capitalists


One venture capitalist who is advocating for a shift in investing is Chris Sacca, founder of Lowercarbon Capital. In his letter sent to shareholders, he opened by outlining how the climate is in a dire situation - even worse than what we previously perceived. The investment fund has already raised $800 million in outside capital and funded more than 50 startups. Sacca views carbon as expensive and inefficient, and he believes that investments that contribute to removing it from production processes are bound to yield returns. However, he also points out that the opportunities for green technology will expand with more research and skills being expended into developing solutions that go beyond simply reuse and recycling initiatives (7). 





Seeing as sustainable investing is a movement quickly gaining momentum, what are the current options for those looking to invest? 



The New York Times provides a great outline on how to approach sustainable investing, which could be found here. Some of the key takeaways from the aforementioned article would be to firstly evaluate which issues matter most to you through becoming a client of services such as Horizons Sustainable Financial Services, a company that helps clients sort out their investing priorities and realize what they should be targeting. 



In addition to this, finding the ESG ratings of a company could also help direct investment efforts. One helpful resource is YahooFinance, where ESG ratings are available for certain companies, with the rate determined by Sustainanalytics - a company recently acquired by Morningstar (8). 



Finally, if you were looking for a robo-advisor to pick your ESG funds for you, companies that could be ideal include EarthFolio, Ellevest, and Motif. Another company that could also be used for value-based investing would be Open Invest. Open Invest is a value-based investing platform recently acquired by J.P. Morgan and one that will soon be operational. This acquisition only further points to the relevance of sustainable investing in today’s world and the movement’s growing impact. 



Overall, sustainable investing is a movement that is rightfully gaining momentum and provides investors with the invaluable opportunity to have a chance to align investment practices with their own values. 

Guest User
Previous

Books and the Digital Age
Next

The Not-So-Fun Things about Being a Small Business Owner