As a wider range of investors continue to incorporate sustainable investing in their investment process, there’s been a growing trend of traditional investment strategies being repurposed as sustainable investing strategies [Figure 4]. During 2021, 45 funds were repurposed while 125 funds were launched. The implication for investors is the need to thoroughly vet strategies to ensure the investment is delivering on the claims made in its supporting literature.
How To Implement Sustainable Investing Strategies
Act To Avoid Harm: Values Alignment
“I don’t want to support companies that harm the environment, violate human rights or engage in unfair labor practices.”
Motivation: some investors are motivated by the awareness that their investments should be transparent and align with responsible behavior, consistent with their approach to consumption.
Investing method: negative/exclusionary screening—a process that excludes investment in companies, industries or countries based on moral values and other specific standards.
Outcome: periodic review to confirm investment portfolio does not contain previously agreed upon companies, industries, or countries.
Benefit Stakeholders: Financial Performance
“I want companies to have a positive effect on society.”
Motivation: some investors see sustainable investing as a way to unlock commercial value, such as backing companies with strong ESG practices that are better positioned to adapt to a changing world.
Investing method: ESG integration—intentionally consider the role of ESG factors in building a strong business alongside traditional financial analysis to identify ESG risks and opportunities.
Outcome: periodic review to confirm investment portfolio has lower exposure to certain ESG risks, such as greenhouse gas emissions, or higher exposure to certain ESG opportunities, such as alternative energy solutions.
Sustainable investing is not a one-size-fits-all approach as interest varies by investor. For investors, the place to start is to understand their own motivations for their interest in sustainable investing. Motivations for sustainable investing are often grouped into values alignment, financial performance, and impact. Once motivations are clear, they can then be mapped to one or all of the outcomes described below. Finding a strategy or two, becoming more aware of various approaches, and slowly increasing one’s exposure to sustainable investing is a common way to get started.
Example: investors can signal that responsible corporate behavior matters.
Example: investors can engage actively to improve ESG performance of companies.