Sustainable investing explained

Sustainable investing refers to investment approaches that consider the risk and opportunity impacts of ESG (environmental, social, governance) factors on investment returns, or seek to bring about positive societal change through one or more ESG factors.

While ESG factors are non-financial, they can have material short-or long-term financial impacts on a company’s performance.

Below are some examples of ESG factors:

Environmental

  • Climate change and carbon emissions
  • Energy efficiency
  • Pollution/air quality
  • Clean energy and technologies
  • Use of natural resources

Social

  • Labour relations
  • Diversity agenda
  • Workplace health and wellness
  • Community relations and investment
  • Child labour

Governance

  • Board oversight and diversity
  • Cultural tone from the top
  • Corruption and bribery
  • Business ethics
  • Cartels and price fixing

The history of sustainable investing

The first sustainable investing mutual fund was launched by Pax World Management in the US over 50 years ago. Growth of sustainable investments was fairly slow for the first few decades, but it started to take off in 2016, soon after the signing of the Paris Climate Agreement. According to Opimas, all investment funds  targeting ESG performance grew from around $29.3 trillion asset under management (AUM) in 2016 to $51.2 trillion in 2020. Below is a history of key events that led to the development of sustainable investing.  

Explore more: Each blue dot represents a milestone in sustainable investing.

  1. 1971

    Pax launches the first responsible mutual fund

  2. 1989

    Exxon Valdez oil spill and launch of Ceres Investor Network

  3. 1990

    Launch of Domini 400 Social Index promoting high ESG standards

  4. 1992

    United Nations Framework Convention on Climate Change (UNFCCC)

  5. 1997

    Kyoto Protocol extends the UNFCCC to reduce greenhouse gas emissions

  6. 1999

    Launch of Dow Jones Sustainability Indices

  7. 2006

    Launch of Principles of Responsible Investment (PRI)

  8. 2008

    World Bank issues first labelled green bond

  9. 2015

    Sustainable Development Goals set up by the United Nations

  10. 2016

    The Paris Agreement to limit warming to 1.5C by 2050

  11. 2017

    Launch of Climate Action 100+, the largest ever corporate engagement

  12. 2020

    3000 PRI signatories

  1. 1971

    Pax launches the first responsible mutual fund

  2. 1989

    Exxon Valdez oil spill and launch of Ceres Investor Network

  3. 1990

    Launch of Domini 400 Social Index promoting high ESG standards

  4. 1992

    United Nations Framework Convention on Climate Change (UNFCCC)

  5. 1997

    Kyoto Protocol extends the UNFCCC to reduce greenhouse gas emissions

  6. 1999

    Launch of Dow Jones Sustainability Indices

  7. 2006

    Launch of Principles of Responsible Investment (PRI)

  8. 2008

    World Bank issues first labelled green bond

  9. 2015

    Sustainable Development Goals set up by the United Nations

  10. 2016

    The Paris Agreement to limit warming to 1.5C by 2050

  11. 2017

    Launch of Climate Action 100+, the largest ever corporate engagement

  12. 2020

    3000 PRI signatories

Types of sustainable investing

There are different investing styles under the sustainable investing umbrella. At the more moderate end of the spectrum is the use of ESG factors to assess risk and enhance risk-adjusted returns by avoiding companies that have low ESG scores. At the other end is Impact investing, whose principal goal is to bring about some form of positive societal impact while also delivering attractive returns. 

Responsible investing

ESG practices as a part of the investment process to mitigate risk.

Best-in-class ESG investing

Proactive, ­positive ESG practices and behaviours that are designed to improve companies’ ESG performance and enhance overall value.

Thematic investing

Invests in ESG macro-trends that drive capital allocation to specific segments of the market.

Impact investing

Targets ESG challenges (or opportunities) while generating financial return and measurable social/environmental improvements.

It’s important to note that these investing styles are not necessarily mutually exclusive. Goals and methodologies can overlap. 

Sustainable investing resources

Infographic

Sustainable investing - fad or forever

Podcast

Sustainable investing principles and designing an ESG reflective product shel‪f

News

Sustainable investing in the news

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