Responsible Investment
Responsible investing, also known as ESG investing, is a form of investing that considers an array of environmental, social and governance (ESG) factors for the purpose of managing risk and building financial returns. ESG criteria are created to identify investments in companies that are aligned with environmental, social, and governance principles, and that may have a positive impact on society. The focus of such investments lies in looking to balance ethical standards and financial performance, while delivering long-term returns without compromising financial goals.
Given the global focus in recent times to strive for sustainability, responsible investment is being seen as a necessary step in achieving such goals. The primary aim of responsible investment is to take financial impact into consideration and to place investments in companies that have sound values and polices in place when it comes to labor standards, corporate governance, environmental considerations and other ESG factors.
Investing In 2020
With the advent of 2020, the global financial environment has undergone tremendous change. As socially conscious investors focus on ethical issues and global sustainability, the trend of responsible investing is on the rise. Here are some of the latest trends that are driving the growing popularity of responsible investments around the world this year.
Increased Demand of Thematic and Impact Investing
Thematic investing has started to gain traction in the investment community, especially when it comes to responsible investing, as it enables investors to invest in companies that are taking part in business initiatives that positively impact society or the environment. Impact investing focuses on investments in companies with a social or environmental mission, where investments are made to have a greater impact on society. This form of responsible investment has seen increased interest in recent years, particularly from institutional investors who are looking for positive long-term returns with lower risk.
Pursuit of Sustainable Investing
Sustainable investing has become even more popular this year as investors seek to make responsible investments for long-term returns. Pension funds, foundation endowments, and family offices are investing larger amounts in sustainable investments in 2020, as investors look to gain exposure to industries that have made strides in developing sustainable solutions. Moreover, these investments may also deliver enhanced returns over the long run, while helping to protect the environment.
Rise of Responsible ETFs
Exchange-traded funds (ETFs), which are professionally managed investment vehicles that track a particular index, sector, or theme, have become an increasingly popular form of responsible investing this year. Responsible ETFs invest in a particular set of companies that meet certain ESG criteria, such as those that adhere to green policies, create employment, and practice corporate social responsibility. These ETFs aim to maintain more stable returns with lower volatility, while providing investors exposure to ethical investments in the stock market.
Growing Interest of Corporate ESG Engagement
Corporate engagement has become an important component of responsible investing in 2020. Institutional investors have begun to actively engage with companies in which they have invested, in order to encourage them to improve their practices in terms of ESG. Shareholder resolutions have also been drafted to ask companies to report on their sustainability efforts, and investors have been vocal about pushing for greater transparency on ESG issues.
Expanding Focus on Sustainability-linked Bonds
In 2020, the focus of investors has started to shift to sustainability-linked bonds, which link the objectives of the issuer and the investor. Sustainability-linked bonds are designed to finance sustainable solutions, while providing investors with financial returns that are linked to environmental, social, and governance (ESG) performance. Through these bonds, investors can gain access to timely investments in projects which address the climate change challenge.
Benefits of Responsible Investing
With the focus on ESG criteria and sustainable investing solutions, responsible investing has become more attractive to both institutional investors as well as retail investors in 2020. Here are some of the benefits of responsible investing:
● Financial Benefits – Responsible investing has the potential to deliver long-term financial returns, while reducing risk. By investing in ethical investments, the investor can make an impact on society, while still growing their portfolio over the long term.
● Diversification of Assets – Responsible investing allows investors to spread their risk by investing in a diversified portfolio of stocks, bonds, and other securities. This form of investing helps to spread the risk and returns of the portfolio, while increasing its stability and long-term performance.
● Lower Costs – By investing in responsible investments, investors can lower the costs of their investments. Responsible investing entails no additional costs, but can result in lower fees, resulting in greater returns.
Responsible investments are increasingly becoming popular due to their potential to deliver financial returns while respecting ethical principles. With the growing focus on global sustainability, responsible investing has the potential to help investors diversify their portfolio, while reducing their risk while reaping long-term returns. In 2020, this form of investing has seen increased interest, as more and more investors start to realize the potential of ESG related investments.
