Young noted that sustainable investing is increasingly attracting institutional investors. "We're seeing more institutional investors, notably CalPERS (California Public Employees' Retirement System) and CalSTRS (California State Teachers' Retirement System), who've made serious efforts to integrate sustainability into their processes," she said.

One reason for that, said Parnassus Investments research director Ben Allen, is that companies that earn high marks for sustainable investing are alpha generators that are viewed as part of the solution.

"For institutional investors, the more they see the results and the more research they see come out in this area from universities and business schools, the more it will drive that acceptance, Allen said.

Indeed, institutional investors want bottom line results; not feel-good fads. "What sustainability does for a company is reduce its risk because if you don't create an environmental liability, you don't have to clean it up and carry it on your balance sheet as a liability," Robinson said, adding that companies can enhance profitability through greater operational efficiency and reduced costs that often result from sustainable business practices.

Growing awareness of this broad trend is fueling more disclosure around sustainable business practices.

"More investors are paying attention to these issues, and more companies are producing information that's helpful and relevant to help investors understand the sustainability performance of companies," Dalheim said. "And that's driving a virtuous cycle now because there's more information out there, investors are paying more attention, and there's more information in SEC filings. More companies are putting information on sustainability and governance issues in their annual financial reports. So that's helping to spread the trend to mainstream investors."

Quantifying Risks

Allen says some issues germane to sustainable investing are more important than others, but things such as environmental regulation definitely need to factor into the overall investment criteria. "For us, it's just as important as understanding the margins and revenue growth," he said. "It's just another lens to understanding the intrinsic value and fundamentals of a business."

That said, he added there are no concrete rules to follow like with certain financial metrics. "It's not obvious finding out what these risks are, and the expertise we're selling is our judgement," he added, noting that Parnassus portfolio managers work with two internal ESG (environmental, social and governance) analysts who focus on these issues.  

Robinson concurred. "There really isn't a service you can subscribe to that rates how a company looks [from a sustainable investing perspective], so a lot of it depends on the internal analysis you do. And even with that, there are no cut-and-dry answers to that. It's really about how you approach it and look at it."

Robinson said his experience finds that companies that are environmentally responsible generally are socially responsible. It speaks to a company's culture, and another way to approach that is to look at a company's safety record.