Sustainable investment is an investment strategy that considers environmental and social impacts, in addition to financial returns. It is a way of investing that takes into account the long-term sustainability of the planet and its inhabitants. This type of investing seeks to reduce human-caused emissions and balance remaining emissions with carbon removal, in order to meet the global goals of avoiding catastrophic results due to climate change. The ITR metric is used to indicate alignment with the temperature objective of the Paris Agreement for a company or portfolio.
Responsible investment, also known as ethical investment, socially responsible investment, green investment, best-in-class ESG, ESG integration, thematic investment, impact investing, sustainable investment and shareholder participation, is a way of investing that takes into account environmental and social criteria in addition to financial returns. It involves excluding companies that participate in activities that the investor considers unethical or that are contrary to certain international declarations, conventions and voluntary agreements. These can include alcohol, tobacco, pornography, certain weapons, nuclear energy and serious human rights violations. Exclusions can also be based on religion or agreements such as the Universal Declaration of Human Rights and the Rio Declaration on Environment and Development.
Sustainable investment refers to the composition of the portfolio based on the selection of assets that can be defined in some way as sustainable or that can continue in the long-term future. It is often combined with best active or conviction-based investment strategies, but it can also be applied to near-passive investment strategies. Examples of social objectives that a fund of this type could seek in companies could be those aimed at reducing inequalities, providing job security and promotion opportunities for employees. Best-in-class investment (ESG) refers to the composition of portfolios by actively selecting only those companies that meet a defined classification obstacle established by environmental, social and corporate governance criteria.
Businesses are generally rated based on a variety of criteria and the score received will depend on how the criteria are weighted. Qualified companies will be those that reach a defined obstacle such as the top 30 percent or top 50 percent within each sector. ESG ETFs (exchange-traded funds) have become more popular as they make sustainable investing more accessible and affordable than other types of mutual funds. Sustainable investing is a way of investing that takes into account environmental and social criteria in addition to financial returns in order to create a portfolio that is both profitable and beneficial for society.