Sustainable Investing: A Force for Positive Change

One may have heard it called several different things, but sustainable investing is an approach that incorporates environmental, social, and governance (ESG) issues when building investment portfolios, while also encouraging companies to improve their own ESG risk management practices.

The impact of sustainable investing

As sustainable investing grows in popularity and assets under management (AUM), it is impacting the way investment decisions are made. Whether it’s funding rural hospitals or adding more diversity to corporate boards, sustainable investing has become a force for positive change — it is changing the investment industry, improving companies, and helping communities.

Changing the investment industry

Sustainable investing is changing the investment industry by challenging, and then adapting, traditional approaches in the investment decision-making process. Whereas the first sustainable investing strategy began in 1971 by divesting, or eliminating exposure to certain products, it has evolved to include multiple investing approaches. As ESG data became more accessible, investment managers began constructing portfolios that integrated ESG issues into investment analysis, screened securities into or out of portfolios based upon objectives, or applied ESG thematic approaches to portfolio construction. The end result has been a large opportunity set of sustainable investing strategies with two overall goals. To protect or enhance long term value by addressing ESG risks and opportunities and to protect, enhance, or otherwise positively impact the long-term health of the environment or society.

A focus on making improvements within companies

Another by-product of the sustainable investing movement has been a focus on making improvements within companies themselves through shareholder engagement. Active engagement by shareholders can encourage more responsible corporate practices while discouraging corporate practices that may lead to increased exposure to risk. There are myriad examples of sustainable investing asset managers helping companies address ESG risks while also identifying ESG opportunities within their business practices.

Changing communities

Sustainable investing has also been at work positively changing communities through community-oriented investing. This type of investing brings capital directly to underserved communities that conventional markets may not reach, such as low-income neighborhoods and rural communities. It also delivers social benefits, including affordable housing and small business loans, using investment products that can be managed for risk and return. Sustainable investing asset managers have created customized portfolios using fixed income securities in order to provide capital to communities that may not otherwise have access to such capital.

Sustainable investing will continue to be a force for positive change as awareness of its evolution and impact on the industry, companies and our communities continues to increase.

For further details on how sustainable investing is a force for positive change, please see Force for Positive Change on ClientWorks.