Date Your Planet

LinkedIn

Menu

What Is Sustainable Investing?

Sustainable investing refers to a broad range of investing practices in which investors seek to achieve financial returns while also promoting long-run environmental or social value. By combining traditional investment approaches with ESG insights, investors ranging from global institutions to individuals are considering both “value” and “values” when making investment decisions. Factoring in ESG allows investors to generate more comprehensive investment analyses and make better-informed investment decisions.

Sustainable investing is divided into two categories: ESG-based Investing and Impact Investing. Intentionality and impact measurement are key distinguishing factors between the two.

  • ESG-based Investing (gaining widespread adoption): ESG-based investors seek market-rate returns and try to mitigate risks caused by ESG issues (e.g., low productivity due to poor employee engagement or degradation of real estate assets due to climate change). Some also look for ESG opportunities to increase business value (e.g., reduced office building maintenance costs).
  • Impact Investing: Impact investors intentionally search for innovative solutions that can potentially create environmental or social impact in a measurable way (e.g., low-carbon cement to help combat climate change). Some of them are willing to accept below-market-rate (i.e., concessionary) returns in exchange for greater impact.

 

“PUBLIC” VS. “PRIVATE”

It’s essential to be clear about how “public” and “private” are used in different contexts. In some settings, these terms are used to distinguish government activities (public sector) from activities conducted by individuals and private businesses (private sector). In investment settings, “public” means assets available to the general public on exchanges, such as Apple stock traded on NASDAQ. “Private” assets, on the other hand, are not traded on public exchanges and often involve companies (private equity), real assets, or private debt.

We see sustainable investing practices in both public and private markets around the world.

Inspiration: Shawn Cole, Vikram Gandhi, and Caitlin Reimers Brumme, “Background Note: Introduction to Investing for Impact,” HBS No. 218-072 (Boston: Harvard Business Publishing, 2020), p.3., accessed August 2021.