Sustainable investing is when investors observe a company’s environmental, social and governance factors before providing funding to it.
Now more than ever, it is essential to focus on sustainability and companies that prioritize this show everyone around them how vital saving the planet is and encourage change. People are looking to invest in such businesses making progressive impacts on the climate.
Sustainable investing is when investors observe a company’s environmental, social and governance factors before providing funding to it. They are interested in devoting money to enterprises interested in positive change for each of the previously listed aspects.
The environmental factor focuses on exactly what it sounds like — ecological protection. This means investing in companies that are fighting climate change. Additionally, this can include reducing pollution and deforestation, fighting water scarcity and encouraging biodiversity.
The social factor looks at how a company invests its own money and resources. Sustainable investors will research a business to see where they allocate their funding. They look for how they are treating their employees, their stance on human rights and if they interact with their surrounding communities.
The governance factor pertains to how a business is run while encouraging beneficial changes. It promotes full disclosure of a company’s shareholder rights, possible political contributions, diversity and pay in leadership, and the overall condition of their management.
Investors are now frequently looking at all three factors of sustainable investing: environmental, social and governance.
Why is this important?
Sustainable investing was focused on social changes when it first started. Now, people are using their money to focus on an incredibly pressing issue — climate change.
The other sustainable investing factors should also be considered, but the environmental element has a time limit. The Earth’s temperature has been steadily rising, with 2020 being the second-hottest year in NOAA’s 141-year record. The 10 hottest years have all occurred since 2005.
These rising temperatures have already had horrible effects on the planet. Polar ice caps are melting and threatening ecosystems and coastal homes as global temps increase. More extreme weather events are happening, endangering the lives of people and animals. It also means periods of hot weather will be longer, increasing the chances of heatstroke and other related illnesses.
Scientists estimate the Earth will likely experience irreversible damage from climate change within a few short years, anywhere from 2027 to 2042. This is why sustainable investing is important — because it diverts funding to those dedicated to solving this problem as soon as possible.
How to invest sustainably
There are plenty of ways to save money and find companies dedicated to helping the environment, whether you’re currently an investor or looking to invest.
Establish some eco-friendly ways to reduce spending if you’re looking to start investing and want to save money before beginning. You’ll already be doing your part while preparing to invest. Consider how much water you’re using, try eating a little less meat or shop from thrift stores more frequently. These ideas and more will help you manage your budget when preparing for investment.
Research companies making an effort toward sustainability once you’re ready to invest. For example, Forbes has created a list of 100 companies that were the most sustainable in 2020.
JUST Capital — a nonprofit ranking businesses in the stock market on the three sustainable investing factors — has also released its top 100 sustainable stocks for 2022. Explore your options, as there are plenty. Find companies or projects that align with your values and are currently working toward being environmentally friendly.
Many local and international businesses are also looking to donate toward environmental protection. Reach out to an organization in your area committed to conservation and combatting climate change if you are considering setting up a nonprofit to invest money into sustainable companies. Donations of any size will be largely helpful in your mission.
Does susainable investing help?
Sustainable investing has been historically successful. One of the biggest examples was the 1985 protests at Columbia University against apartheid, which led to the school ceasing investing in companies doing business with South Africa. Nelson Mandela was released from prison just five years later, and the South African apartheid ended.
Today, sustainable investing is helping hold companies accountable. The Securities and Exchange Commission has proposed a rule that would require businesses to disclose their greenhouse gas emissions and how climate change has impacted them. If passed, this would give investors leverage in how they responsibly invest. Companies would have to follow up on their sustainability claims and may change their practices to attract more interest.
Sustainable investing has the potential to change how big companies operate. It could inspire them to alter how they run themselves and contribute to the planet. Where you invest your money shows these businesses it matters how they act.