Sustainable investing: What is it, and how does it work?

 

[source/ Corporate Finance Institute]

Investing is the practice of allocating money with the expectation of earning a return on it. But what if investing could do more than just generate a profit? What if it could also create a positive impact on the world? That's the idea behind sustainable investing, a rapidly growing approach to investing that considers not only financial returns but also the social and environmental impact of the companies in which one invests.

Sustainable investing is also known as ESG (environmental, social, and governance) investing, and it is becoming more popular among both seasoned investors and those who are new to the world of finance. But what exactly is sustainable investing, and how does it work?

At its core, sustainable investing is about investing in companies that are aligned with your values. This means that in addition to considering the financial health of a company, you also take into account its impact on the environment, the treatment of its workers, and its corporate governance practices. By investing in companies that prioritize these issues, you are using your money to support positive change.

Justin Bgoni Chief Executive Officer of Zimbabwe Stock Exchange also gave a recommendation, he said:

“Consider investing in companies with a strong track record of environmental, social, and governance (ESG) practices.”

So how does one go about investing sustainably? There are a few different approaches, depending on your goals and preferences.

The first approach is called screening, which involves excluding companies that don't meet certain criteria. For example, you might choose to exclude companies that produce tobacco or weapons, or those with a poor environmental track record. By screening out these companies, you are avoiding investing in businesses that go against your values.

Another approach is engagement, which involves actively engaging with companies to encourage them to improve their ESG practices. This can involve writing letters to the company's leadership, attending shareholder meetings, or even voting on shareholder resolutions. By engaging with companies in this way, you are using your influence as an investor to encourage positive change.

A third approach is impact investing, which involves investing in companies or funds that are specifically designed to create a positive social or environmental impact. For example, you might invest in a fund that supports renewable energy projects or provides funding for affordable housing. By investing in these types of opportunities, you are using your money to directly support positive change.

So why is sustainable investing becoming more popular? There are a few reasons. First, many investors are becoming more conscious of the impact their money has on the world. They want to make sure that their investments are aligned with their values and are not supporting practices that they find objectionable. Second, there is increasing evidence that companies that prioritize ESG issues tend to perform better in the long run. By investing in these companies, you are potentially generating a better financial return while also supporting positive change.

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