In today’s world, recent advances in crowd funding, technology and an increased awareness by retail investors have all contributed in bringing socially responsible investing to the huge masses, often with similar or better returns that what have been experienced in typical index portfolios. Peer-to-peer direct investing in specific causes is only a click away and technology that enables SRI funds to quickly construct portfolios that ensures to a variety of different themes. In short, investors have some great amount of good options with actual historical track records. There is an old question often asked by investors, “is there a way to do good without sacrificing returns?” However, most “socially responsible investing” (SRI) remained a recess market for most of the wealthy investors who were wanting to forgo market returns for the greater good.
First comes Sustainable investing:
Sustainable investing is defined by three key segments that are exclusionary screens, ESG consideration and impact investing.
- Exclusionary screen
Exclusionary screens are there to remove some specific products or industries that do not align with an investor’s value. For example, if you decide that you don’t want to invest in tobacco or fossil fuels. This approach must be the first iteration of making investment decisions which are purely based on factors other than just financial performance, applying some constraints based on personal beliefs.
- ESG consideration
ESG consideration considers some of the factors like environmental, social and governance factors, meant to identify just what a company performs and even how that job is done. Companies report on how they carry out a particular environmental responsibility, how they support employee diversity, how many volunteer hours they devote to the community each year, etc. We then use these standards to build a company’s portfolio.
- Impact investing
Impact investing is specialized for a particular reason which is clear social or environmental outcome that should be measurable and transparent. In fact, from just refraining from investing in something that is purely not aligned with your beliefs, you’re focusing on those companies that are operating properly and responsibly and possess a positive impact on the world.
How much the increase is in sustainable investing?
Due to sustainable investing, there is an increase of 61 percent in the past few years and the best part is it is still under continuation. Approximately two thirds of the sustainable investment market are situated in Europe and 30 percent in the U.S., where faster growth is noticed. Exclusionary screening is mostly noticed in Europe, however the ESG approach is the most common approach found in the U.S. According to the statistics, a key reason why growth is not even greater is because there have not been a wide range of investment opportunities to complete the demand as soon as possible.
How an investor can make a positive impact overall?
Nowadays, it is becoming easier for the investors to direct their money with the increasing wings of technology. Hence, all because of technology, transparency is maintained among the investors. The information which is available to the investor helps them to decide that which investment will have the greater impacts to their business.