Sustainable investment is an economic activity that contributes to an environmental or social objective, without significantly harming any environmental or social objective and with companies following good governance practices. For instance, if 25% of a company's revenues are aligned with environmental objectives and it does not significantly harm these objectives in the rest of its business activities, then an investment in the entire company is considered sustainable. The definition of sustainable investment and the application of the principle of no significant harm (DNSH) as set out in the SFDR makes it difficult to compare products.
Sustainable investmentis a series of practices where investors seek to obtain financial returns while also promoting long-term environmental or social value.
It has been demonstrated that people and companies can benefit economically by making their investments more sustainable. Individual investors who want to make more informed decisions or business leaders concerned about sustainability can take an online course focused on sustainable investment to quickly gain the knowledge and skills they need to succeed. The diverse interpretations of the definition of sustainable investment introduced by the SFDR and exploited in MiFID II leave many market participants uncertain between approaches that have different benefits and limitations in the short and medium term. To avoid misrepresentation, investment advisors should evaluate their objectives, time horizon and individual circumstances (as required by local regulations and following best practices) before asking about the client's possible sustainability preferences.
Sustainable investment ensures that companies are not judged solely by short-term financial gains, but by a broader view of what they contribute to society and how they contribute to society. The advisor must determine the proportion of the client's investments in sustainable investments, or the consideration given to adverse impacts, identifying the products accordingly. Sustainable investing has become increasingly popular due to the demand of millennials and impact investors concerned with ethical investing or financing companies with intrinsic values that have a positive impact and drive change. When possible, in accordance with the Delegated Climate Act12 and the Delegated Act on Complementary Climate1, sustainable investments should not significantly harm any environmental or social objective.
This implies that sustainable investment must be calculated at the activity level, an approach similar to the EU taxonomy.