The sector of sustainable investing has come a long way. The field has exploded recently, with resources and options available to investors multiplying greatly. Although its philosophy has existed for hundreds of years, the strategy is now finally entering the mainstream. Over a hundred billion dollars is invested in this particular sector. It is growing in popularity with the younger generation. So-called ESG (environmental, social and governance) issues are a hot-button issues in many corporate boardrooms today. There have been a number of recent developments for this asset class.
New data sources
Several decades ago, socially-conscious investors did not have a lot of information to go off of and just tried avoiding stocks with a bad reputation like cigarette companies. Over the past decade, however, there has been a definite improvement in the amount of data available for sustainable investing practitioners. Since there is a booming market, companies like MSCI and Sustainalytics provide investors with data to help research and determine their investment allocations.
Investing is often very quantitatively driven and data is the lifeblood of the decision-making process. More data means better decisions and sustainability issues can be evaluated more holistically.
Focus on long-term investing
Typical investors are focused on the day-to-day and at most, quarter-to-quarter. But what about the effects of rising sea levels and climate change? Sustainable investing thinks about the long-term effects of its holdings. CEOs and corporate leaders have a need to know how they will run their companies in a rapidly changing world. For example, many oil companies might need to face a future where renewable energy proves to be lower cost than their energy. What are the CEOs of the oil companies Exxon Mobil and British Petroleum doing?
A diversity of Investment Options
With the growth in the sector comes a diversity of options. There are now hundreds of socially responsible and/or impact mutual funds and exchange-traded funds (ETFs). Both active and passive choices and exist, as well at domestic and international. The plethora of choice is truly a boon for investors. In previous decades, individuals only had several choices to choose from. Now, they can choose from dozens
Regular investing means sitting back, behind the scenes from day-to-day management. Sustainable investing means being an active owner and driving for a positive change. With shareholder proxy voting for things like executive compensation and other sustainability issues, the investor can make lasting change with just his or her vote.
Focus on Intangibles
The field of investing very traditionally focuses on number crunching the standard figures. Sustainable investing takes more into account the intangibles. For example, when Elon Musk showed signs of instability, did the brand of his company Tesla suffer lasting damage?
Sustainable investing is here to stay. A hundred billion dollars asset class now has the necessary data to thrive. Investors now have hundreds of funds and ETFs to choose from. For investors looking to make an impact, look no further than sustainable investing.