Sustainable investing is an investing that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive social impact.
The environmental criteria are:
Green building
Climate change
Clean technology
Pollution
Sustainable natural resources
Water usage and conservation
The social criteria are:
Human rights
Avoidance of tobacco or other harmful products
Community development
Diversity and anti-bias issues
Workplace safety
Labor relations
The corporate governance criteria are:
Corporate political contributions
Executive compensation
Board diversity
Anti-corruption policies
Board Independence
There are several motivations for sustainable investing, which include personal values and goals, institutional mission, and the demands of customers. Sustainable investors aim for strong financial performance, but also believe that these investments should be used to contribute to advancements in social, environmental and governance practices. They may actively seek out investments—such as community development loan funds or clean tech portfolios—that are likely to provide important social or environmental benefits. Some investors embrace sustainable investing strategies to manage risk and fulfill fiduciary duties; they review ESG criteria to assess the quality of management and the likely resilience of their portfolio companies in dealing with future challenges. Some are seeking financial outperformance over the long term; a growing body of academic research shows a strong link between ESG and financial performance.
Just as there is no single approach to sustainable investing, there is no single term to describe it. Depending on their emphasis, investors use such labels as: “community investing,” “ethical investing,” “green investing,” “impact investing,” “mission-related investing,” “responsible investing,” “socially responsible investing,” and “values-based investing,” among others.
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