Both Sustainable and ethical investing are used to refer to one’s investment strategy that focuses on using one’s capital to make a positive impact on society and the environment.
Therefore, ethical investing can be used to cover virtually all investments that have the intention of benefitting society and the environment.
Sustainable investing is a range of practices in which investors promote long-term environmental benefits while achieving financial returns. Ethical investing allows us to promote sustainability in the environment and humankind as the investment strategy is not solely based on short-term gains but also on the broader perspective of what they contribute to society.
Sustainable Investing Strategies
Although sustainable investment has the same goal, different investors have different motivations, which means that the investment strategies used by other investors to promote sustainability in the environment and humankind are different. Below are some of the approaches.
Exclusionary or Negative Screening
Exclusionary screening focuses on excluding specific sectors based on environmental, social, and governance (ESG) considerations. Therefore, the negative impact screening criteria seek to exclude those companies that negatively impact the environment and humankind at large and are therefore not included in their fund. Similarly, the investor’s investment portfolio is based on ESG criteria.
Best Class Screening or Positive Screening
Contrary to negative impact screening, positive impact screening includes investment in companies, sectors, or projects, as seen from the perspective of positive impact screening. Each asset’s ESG performance is compared to its industry peers to determine which is doing better for the environment and humankind.
ESG funds are a type of ethical investment funds that are solely based on environmental, social, and governance considerations. When considering the environment, there are key areas, such as the carbon footprint, waste management approaches, water usage, conservation measures, and clean energy generation.
Considerations are also made on the supply chains for those companies included in the ESG funds. This further ensures that none of the operations of the companies listed in ESG funds have a negative implication for the environment and humankind. From the social perspective of an ESG fund, it tries to advocate for social change and is much more beneficial to humanity.
Therefore, the analyst majors on social issues such as respect for human rights, employee safety and health, racial diversity and inclusion in its hiring programs, and community involvement. Therefore, all these social considerations for ESG funds turn out to be a great benefit to humankind, making an ethical investment the best way to promote sustainability in humanity and the environment.
Another aspect that is given more significant consideration when it comes to ESG funds in ethical investment is the issue of governance. Governance involves reviewing the quality of the board and management, executive diversity and compensation, overall disclosure and transparency, shareholder’s rights, corporate political contributions, and anti-corruption practices.
Ethical investment allows investors to promote sustainability in the environment and humankind as the investment is solely based on one’s ethical considerations. Also, the various sustainable investing strategies further guarantee sustainability.
Such strategies include exclusionary or harmful impact screening and best-in-class or positive impact screening. ESG funds allow investors to venture into ethical investment as the funds consider environmental, social, and governance issues.