In brief, it means making investment decisions with regard to factors over and above financial returns.
Today, sustainable investing is often referred to as ESG investing, with the initials standing for environmental, social and governance. A decade ago, the United Nations adopted “Principles for Responsible Investment,” which outlines “an approach to investing that aims to incorporate environmental, social and governance (ESG) factors into investment decisions, to better manage risk, and to generate sustainable, long-term returns.”
Adoption of these principles is growing rapidly. In the past ten years, more than 1,500 investment managers and 300 asset owners (pensions, foundations, etc.) worldwide, representing over $60 trillion in assets, have become signatories of the UN principles.
Earlier this year, Eaton Vance Investment Managers published a helpful list called “The Language of Responsible Investing,” which I’ve copied in part below. It suggests many of the various factors beyond financial returns that might be considered in socially responsible investing.
In my next blog, we’ll look at various ways you can be a sustainable investor.
The Language of Responsible Investing*
Sustainable – Meeting present needs without compromising future abilities.
Green – Environmental focus (clean air and water, resource stewardship)
Ethical – Guided by moral values, ethical codes, or religious beliefs
Mission-related – Emphasis on selecting companies advancing a common mission
Social screening – Eliminating companies from consideration based on activities
Impact – Highly focused investment to accomplish a specific purpose
*Eaton Vance 2017 (abridged)
**Investing in the stock market involves gains and losses and may not be suitable for all investors. The investment’s socially responsible focus may limit the investment options available to the investment and may result in returns lower than those from investments not subject to such investment considerations.