Sustainable investing has become a buzzword in the financial world, but what does it actually mean?

At its core, sustainable investing involves making investment decisions based on three key factors: Environmental, Social, and Governance (ESG) criteria. These criteria help investors evaluate companies not just on their financial performance but also on their impact on the planet and society.

This is essential in the modern world. Think about it for a second. With growing human impact on the planet it is essential that we as a responsible investor support companies that go an extra mile towards getting a cleaner growth that is sustainable for both the company and the planet.

Environmental (E) criteria consider how a company performs as a steward of nature. This includes their efforts to reduce carbon emissions, manage waste, and conserve natural resources. Companies that score high on environmental criteria are typically those that actively work to mitigate climate change and reduce their ecological footprint.

Social (S) criteria examine how a company manages relationships with employees, suppliers, customers, and the communities where it operates. This includes labor practices, human rights, and community engagement. Companies that excel in social criteria are those that prioritize fair labor practices, diversity, and community development.

Governance (G) criteria focus on a company’s leadership, executive pay, audits, internal controls, and shareholder rights. Good governance ensures that a company operates transparently and ethically. Companies with strong governance practices are less likely to be involved in scandals or legal issues.

Investing with ESG criteria is not just about feeling good; it's also about making smart financial decisions. Studies have shown that companies with strong ESG practices often perform better financially in the long run. This is because they are better prepared to face regulatory changes, environmental challenges, and social pressures.

For instance, the COVID-19 pandemic highlighted the resilience of ESG-focused companies. During the market turmoil, ESG funds outperformed traditional funds, attracting billions in new investments. This trend is expected to continue as more investors recognize the long-term benefits of sustainable investing.

The concept of sustainable investing is not new. It dates back to the 1970s when the first sustainable funds were created in response to growing demand for responsible corporate behavior. Over the decades, several milestones have shaped the landscape of sustainable investing:

• 1989: The Exxon Valdez oil spill led to the creation of the Coalition for Environmentally Responsible Economies (CERES).
• 1997: The Kyoto Protocol was signed to reduce carbon emissions.
• 2000: The United Nations Global Compact was established to incorporate ESG issues into business practices.
• 2015: The 17 Sustainable Development Goals (SDGs) were adopted by 193 countries.

These milestones have paved the way for the integration of ESG criteria into mainstream investing.

There are several ways to incorporate ESG criteria into investment strategies. Some of the most common approaches include:

• Negative/exclusionary screening: Excluding companies or industries that do not meet certain ESG criteria, such as tobacco, firearms, or fossil fuels.
• Positive/best-in-class screening: Investing in companies that perform best in their sector based on ESG criteria.
• ESG integration: Incorporating ESG factors into traditional financial analysis to identify risks and opportunities.
• Impact investing: Investing in projects or companies specifically aimed at generating positive social or environmental impacts.
• Corporate engagement and shareholder action: Using shareholder power to influence corporate behavior on ESG issues.

As the world grapples with challenges like climate change, social inequality, and corporate governance scandals, sustainable investing is becoming more relevant than ever. Investors are increasingly looking for ways to align their portfolios with their values, and companies are responding by improving their ESG practices.

Moreover, regulatory changes are pushing companies to disclose more information about their ESG performance. This increased transparency helps investors make more informed decisions and encourages companies to adopt more sustainable practices.

Sustainable investing is not just a trend; it's a fundamental shift in how we think about finance. By considering ESG criteria, you can make more informed decisions that benefit not just their portfolios but also the planet and society. As awareness and demand for sustainable investing grow, it is poised to become a cornerstone of the financial world.

Whether you're a seasoned investor or just starting out, adding ESG criteria into your investment strategy can help you achieve your financial goals while making a positive impact. So, the next time you think about where to invest your money, consider the long-term benefits of sustainable investing.