Sustainable investing, also known as socially-responsible investing, is the process of incorporating environmental, social and governance (ESG) factors into investment decisions.
The breakdown of the ESG factors that were used to evaluate companies can be explained as follows:
- Environmental: Does the company mitigate environmental harm by reducing carbon emissions, using renewable energy, or is responsible in disposing of its waste?
- Social: Is the company mindful of its role in the lives of people? Does it pay fair wages, offer safe working conditions, and play a positive role in the community? Does it practice inclusionary and non-discriminatory hiring practices?
- Governance: Is the company structured to avoid conflicts of interest? Is executive compensation tied to long-term growth versus short-term profit? Are corporate practices transparent?
When a person chooses a sustainable investment, they will invest in companies and organizations whose purpose is not only to gain a financial benefit but also to create measurable social and environmental impacts.
In the past, sustainable investing used to mean that there’s a trade-off between returns and investment choices that are more aligned with certain values. Nowadays, however, such views are dismissed as more sustainable investments generate profits, sometimes even one that exceeds market benchmarks.
Now more than ever, sustainable investing is gaining popularity and worth being taken into consideration for investors and firms alike due to its increasing value.
Here are two main reasons why sustainable investment matters:
1.Opportunity for firms to capture financial returns
As a starter, there is a significant influx of client funds that flow into sustainable investments. As a matter of fact, sustainable investment has grown 107.4% annually since 2012 and currently accounts for 18% of the assets under management (AUM) in the wealth and asset management industry.
The increasing demand for sustainable investment is thanks to millennials whose investment preference is tilted towards one that is aligned with their personal values.
Moreover, millennials are estimated to receive more than $30 trillion of inheritable wealth, making the trend of sustainable investment continue to rise.
Hence, if firms manage to capture this market niche, it won’t only enable them to capture more financial returns, but also to establish client retainment.
2. Its Influence in Driving Market Growth
According to The Forum for Sustainable and Responsible Investments’ 2014 report, the number of available sustainable investing funds has nearly tripled since 2008.
According to EY, “the staggering market growth is being driven by not only millennials but also evolving macro-economic trends,” which is the estimation that the world’s population will get an additional 2 more billion people in 2050.
That and the on-going climate crisis will also put more pressure on businesses to go beyond business as usual (BAU) and instead look for ground-breaking and fundamental improvements to address the needs of a growing population without straining the environment even further.
Moreover, research from RBC Capital Markets also reported that 64% of actively managed ESG funds beat their benchmarks, versus 49% of traditional funds through the first week in August 2020.
As sustainable investment becomes more profitable and continues to generate good performance in the market, investors and asset managers would have to rework their portfolios and start including ESG funds, sooner or later.
Where does Waste Management come in Sustainable Investment?
In the context of sustainable investment, waste management companies like Waste4Change are one example of firms that do not merely incorporate, but rather put ESG factors as the center of their business. Therefore, waste management is also a field that is worth looking into when engaging in sustainable investments.
Sustainable investment is the path forward, and it is becoming more relevant, especially in a post-pandemic world.
2017. Ernst & Young LLP. Sustainable investing: The millennial investor