What is sustainable investing and why should we be interested?
Sustainable investments have gained popularity in recent years, fueled by the growing interest of some investors to look beyond financial returns. As a general interest for sustainability has increased, funds flowing into this type of investment have also risen, despite the politicisation of this theme in some countries. But what exactly does sustainable investing involve and is it worth investigating this today?
Sustainable investment: definition
Sustainable investments, also known as responsible investments, aim to integrate an additional dimension into financial analysis and investment decisions. ESG criteria - an acronym for Environmental, Social, and Governance - provide a framework that considers non-financial factors influencing a company's long-term performance.
- Environmental : This first criterion assesses the environmental dimension, including greenhouse gas emissions, the use and conservation of renewable resources, recycling, and energy efficiency. It can help investors evaluate the environmental risks of a company and how it manages these risks.
- Social : This criterion examines how the company manages its relationships with employees, suppliers, customers, and the communities where it operates. This includes working conditions within the company, such as gender equality, social diversity, respect for employee rights, and training. This criterion also encompasses product safety considerations and supply chain management.
- Governance : This final criterion examines the conduct and transparency of the company's management, including the clarity of compensation, integrity, absence of corruption or conflicts of interest, and fairness within the board of directors.
The ESG theme is gaining momentum. This trend reflects the belief that sustainable and responsible business practices are linked to a company's long-term performance and risk profile.
Why opt for sustainable investment ?
Investing sustainably enables investors to align their investments with their personal values. Increasingly, investors are choosing to support companies or funds that combine positive social and/or environmental impact with competitive financial returns. The growing concern for issues such as climate change and social inequalities is leading to a rejection or underweighting of investments in companies contributing to these problems, as opposed tothose promoting ESG principles.
Beyond the positive impact on society and the environment, sustainable investment strategies could also mitigate risks;. they help identify companies capable of addressing environmental, social, and governance challenges, thereby improving sustainability and profitability. Ignoring ESG criteria may offer short-term gains but risks leading to future sanctions and regulations, negatively impacting long-term returns.
Limits of sustainable investment
Although sustainable investment is becoming increasingly popular, there are also many critics. Criticism is often associated with the very nature of this theme, an inclusive approach to analysing companies that is relatively new.
Moreover, sensitivity to sustainability is unique to each individual. The absence of a universal definition leads to different interpretations. Thus, what is considered sustainable for some people may be strongly disapproved of by others. What's more, despite the latest corporate disclosure requirements imposed by regulators, the availability of ESG data remains limited, making it difficult to compare between companies or rating agencies.
All of the points above are sources of potential misunderstanding and greenwashing, which in some cases have caused frustration for investors. However, as sustainability becomes an increasingly important consideration for business leaders, sustainable investment strategies will represent an additional tool to complement portfolio construction and analysis for investors.
Our approach to responsible and sustainable investment
Our approach to responsible and sustainable management is based on a commitment to a greener future, where transparency and responsibility are at the heart of every decision we take.
