The importance of Sustainable Investing and its benefits
By nature, us humans inevitably affect our surrounding environment. We’ve devastated much of our earth’s natural landscapes and created imbalances within the natural flow and law of mother nature, including the likes of our weather systems, rivers, forests, oceans, and lands.
One-third of the world’s forests have been lost; cleared to make space for agriculture & energy production in an attempt to support the world’s ever-growing population.
We're in the midst of the sixth mass extinction, having wiped out 60% of animal wildlife species on the planet in only the last 50 years.
Today, humanity and consciousness lie in the midst of an ethical dilemma. Though I am not here to push an ideological agenda, I recognise we are at a standpoint whereby humanity needs to make some big changes in order to move forward.
1,500 of the world's major corporations fail to be transparent about their impacts on the environment. In fact, 70% fail to disclose their forest-dependent commodities and nonrenewable energies including timber, palm oil, natural gas, coal, oil, and livestock.
The United Nations acknowledged this predicament, approving the ‘2030 Agenda for Sustainable Development', and in January 2016, the 17 Sustainable Development Goals (SDGs) officially came into force, covering the sustainability of economic growth, along with social inclusion and environmental protection. Source: Climate Action
The three principal factors of Sustainable Investing for companies - Environmental, Social and Governance (ESG)
The pressures from consumers, however, are on for companies and governments to build a sustainable future. In the present information age, consumers are more savvy and knowledgeable. As we enter the largest intergenerational wealth transfer from Baby Boomers to younger generations who have inherently different ideologies and values, we, as an industry, need to be adequately prepared for the changes ahead of us.
- Gen X’s are highly motivated to invest sustainably for the future of their children,
- Millennials are outspoken and impassioned about climate change
- Gen Z’s spend more on products that have improved sustainable value
The adoption of a values-based and sustainable approach to investing, as opposed to one driven solely by profit, is required. Advancing an ESG footprint within the investment market is no longer a “nice to have” it is a “must have”, and this includes the value chain that research, rate & recommend investments.
The three principles or pillars of ESG include factors quantified below:
A company’s impact on the environment, such as its carbon footprint, greenhouse gases, water consumption, waste management, and energy use.
A company’s social and labour policies and its history of complying with these. These include employee diversity, health, and wellbeing, how the company interacts with communities, supply chain standards, and customer relationships.
A company’s governance practices, the rules, structures, procedures, and performance measures are designed for governing its environmental and social factors. They designate a company’s responsibilities amongst its board of directors, managers, shareholders, and stakeholders.
What factors make up ESG?
How can ESG be measured?
Benefits of ESG investing
How fast are segments of sustainable investing growing?
How do sustainable investment funds perform?
- facilitates top-line growth,
- reduces costs,
- minimises regulatory and legal intervention,
- increases employee productivity, and
- optimises investment and capital expenditures
Selecting sustainable investments
- Intrinsic values include: Honesty; Openness; Wellbeing.
- Extrinsic values include: Wealth; Status; A good future (Planet).
- Interpersonal values include: Family; Friends; Community (People)