Unpacking the Buzz Behind Sustainable Investing

In the recent G20 summit, countries are concentrating on the promotion of activities that help the earth to be clean and green, reducing carbon emissions and the usage of non-renewable resources to a minimum. Governments and investors are also looking at it as a sustainable future and believe that companies taking steps towards the same agenda will only be able to sustain themselves financially too.

However, there are other aspects of sustainability as well other than environmental ones. Let’s understand everything about sustainable investing and its elements and how to invest in the same:

What is sustainable investing?

As an investor, you must look for various strategies while investing and diversifying your portfolio. In sustainable investing, your focus is on achieving your personal financial objectives while promoting the best environmental and social practices.

When you combine conventional investing strategies with an approach of ESG (environment, social, and governance) related information, and such an approach becomes a centre of making investment decisions, then it is known as sustainable investing.

While practicing sustainable investing, you make sure that a company is contributing to society in terms of financial returns and a broader picture of societal welfare, like reducing carbon emissions, using recyclable packaging, and following all the rules and regulations mandated by the concerned authorities.

As we have seen the importance of ESG in sustainable investing, let’s understand a little bit in detail about the same and how it will affect your investing approach.

ESG principles of sustainable investing

Environment

The “E” in ESG stands for Environmental and refers to a company’s environmental impact. This includes factors such as carbon emissions, resource usage, waste management, and environmental policies and practices. Investors who focus on the environmental aspect of ESG consider the sustainability of a company’s operations and its impact on the planet. They may also consider the company’s efforts to reduce its carbon footprint and improve its overall environmental sustainability, as these factors can significantly impact the company’s long-term financial performance.

Social

The “S” in ESG stands for Social and is the company’s impact on society. Workplace conditions, human rights, diversity and inclusion, and community relations are some of the factors. Investors may look at the company’s efforts to promote diversity and inclusion, support local communities, and ensure ethical labour practices, which can indicate the company’s long-term financial stability and success.

Governance

Every company, or you can say every person in the country, is bound by some law that has to be followed. When a company follows the rules assigned, like the quality of its management and board, executive compensation and diversity, shareholder rights, overall transparency and disclosure, anti-corruption, and corporate political contributions, investors tend to trust more and would love to stay invested.

How to invest?

There are mainly two ways to invest in ESG as a theme. These are as follows:

DIY

Investing directly in sustainable companies is one way to participate in sustainable investing. This involves investing in individual companies or funds that focus on companies with strong ESG (Environmental, Social, and Governance) practices. Direct investment in sustainable companies offers the potential for both financial returns and the satisfaction of supporting companies that are making a positive impact on the world. However, it is important to thoroughly research the companies before investing, to ensure that they truly align with the ESG principles and have a proven track record of sustainable practices.

ESG-centric funds

Various mutual fund houses and portfolio managers offer investments based on the ESG theme. Here, you don’t have to conduct exhaustive research and can invest in a group of sustainable companies. ESG funds provide exposure to a diverse range of companies with strong ESG practices, reducing the risk of investing in a single company and in a way it eliminates the need for individual stock picking and monitoring.

Conclusion

It is better to have an investment strategy that contributes to society overall instead of having a short-term picture of gaining profits. When finance meets the combination of societal benefits, it promotes sustainable businesses along with environmental societal, and governance sustainability as well.