The Essentials of Sustainable Investing

Sustainable investing (SI) has become mainstream with more than USD 35 trillion in assets managed globally under SI principles. In this chapter, we look at the definition of sustainable (or responsible) investing, its present state, and how we got there.

Learning objectives

• The history of SI, from its 18th century roots to modern ESG

• How the emphasis is changing from ESG to impact investing

• How further developments include the SDGs and a focus on climate

There are various ways to approach sustainable investing. In this chapter, we will look at the concept of ‘double materiality’ and discuss the three most popular ways of engaging in SI.

Learning objectives

• Why SI is not a one-size-fits-all, right-or-wrong concept

• The three main ways of adopting sustainable investing

• How to decide which style may be best for which client

Environmental, social and governance factors are now routinely integrated into the mainstream investment process. In this chapter, we will discuss how this is done, and the forms that it can take.

Learning objectives

• How ESG integration is usually done in three steps

• How it works across all asset classes – not just equities

• The benefits of positive screening or a best-in-class approach

Sustainable investing is connected to some of the biggest issues of our times. In this chapter, we explain how four major trends are making it a form of investing that affects everyday life.

Learning objectives

• How climate change-driven megatrends are shaping the agenda

• The importance of regulation and the Sustainable Development Goals

• How protecting human rights is driving investment and engagement

Knowing what constitutes sustainable investing is only half the battle – it is just as important to know what it isn’t. In this chapter, we discuss some of the more common myths about SI, with a video bringing them to life.

Learning objectives

• The nine biggest myths about sustainable investing

• How some of these misconceptions have arisen over time

• Beyond green: why the S and G are as important as the E
  
  
  

Most people agree that investing sustainably is a good idea – but does this come at a price? In this chapter, we explain how using SI does not detract from returns, with some academic research to back it up.

Learning objectives

• How SI leads to better risk-adjusted returns in the long run

• The importance of focusing on financially material metrics

• Morningstar study shows that sustainable strategies do better
  
  
  

Active ownership is an important part of sustainable investing. In this chapter, we explain what it is, and how it is increasingly changing corporate behavior.

Learning objectives

• Why it is important for asset owners to use their influence

• How voting and engagement can improve corporate behavior

• The importance of collaborations to achieve change collectively

The success of using sustainability techniques is becoming increasingly evident in how it is applied to real-life situations. In this chapter, we give real-life examples of how it works in practice in very different spheres. We highlight the success of engagement in tackling decarbonization, deforestation and single-use plastics, along with how investor pressure reduced sugar levels in food, and how ESG analysis raised a red flag at a drugs maker.

Learning objectives

• How engagement turned a utility into a renewable energy powerhouse

• Why dialogues are taking place with governments to tackle deforestation

• Using investor muscle to improve food and using ESG to spot short-termism

In summary, we can recap on what is sustainable investing. This final chapter highlights the main points from the previous eight.