The truth about ESG and sustainable investment

10 things to know about

ESG and sustainable investing

Sustainable investing has become mainstream as investors realize that assessing their investments' environmental and social impacts on society and the planet affects their performance. At the same time, many institutions are deepening their sustainable investment practices.

Sustainable investing is an investment discipline that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and as well as better social and environmental practices.

Recently, politicians in Congress and state legislatures have attacked ESG and sustainable investing as irresponsible, ineffective or partisan in nature. Nothing could be further from the truth.

Here are ten reasons why sustainable investing is needed and is here to stay:

Sustainable investing

is main street investing.

Professional and "main street" investors want to align their investments with critical ESG criteria to achieve long term returns and their hope and vision for a sustainable future, and main street investors want to preserve the things they value. 

Read more about the diversity of sustainable investors

Types of investors:

  1. Individual retail investors, including high net worth individuals
  2. Asset managers such as mutual fund companies or private equity funds
  3. Institutional asset owners such as public pension funds, insurance companies, educational institutions, philanthropic foundations and others.

Motivations/goals:

  • Individual investors may be driven by personal values and goals while institutional investors may be guided by their mission.
  • Financial advisors and asset managers may want to respond to the demands of clients or plan participants.

ESG considerations are about investment results,

not politics.

Prudent investors consider financially material ESG factors when managing risk and seeking investment opportunities.

Experienced sustainable investors use ESG data along with other sound financial analysis to make long-term investment decisions that make sense given today’s real and meaningful environmental, social and governance challenges.

Source: MSCI

The market has embraced  

investment practices that put ESG at the core.

Employees and customers want companies to be good actors.

Companies with strong ESG performance can achieve lower cost of capital. They can gain access to cheaper debt and equity financing as financial institutions view them as lower risk.

Sustainable investors are

investing in a better future.

Sustainable investors seek investments in resilient companies that can address structural and systemic risks while finding innovative opportunities in a more sustainable economy.

They provide capital to the most innovative parts of our economy, including electric vehicles, solar panels, sustainable and green building technologies. They invest in innovations in biotechnology and science to help people live healthier lives and adaptive technologies to help traditional industries adjust to a more sustainable future.

Source: NASA

Sustainable investing is an important strategy 

for addressing climate change.

Climate scientists continue to warn that our economy must change to mitigate the greatest harms of climate change. Meaningful policy changes are the most important strategy to address this, but the role of investors in moving assets from “dirty investments” to “cleaner” ones also plays an important part. 

Learn more about the climate crisis

The most recent IPCC report concluded that climate change may be happening more quickly than expected. Unless there are immediate, rapid and large-scale reductions in greenhouse gas emissions, limiting warming to close to 1.5°C or even 2°C in the next few decades will be beyond reach.

Time is running short and more dramatic steps are necessary to reduce the impact of a warming climate. The role of sustainable investors has never been more important.

Politically motivated and simplistic attacks on "ESG"

hurt the economy and politicians' constituents.

Attempts by policymakers to remove or prohibit sustainable funds as an option in pension or government funds amount to ideologically motivated political posturing that undermines smart investments in their state’s future.

These efforts will reduce investment choice and prevent investors from selecting investments from hundreds of institutions, including leading financial services firms. This, in turn, will increase risk and borrowing costs.

Sustainable investing represents

the free market.

ESG investors are voting with their dollars and seeking investment opportunities that fit their values and will benefit in a sustainable future. 

Investing sustainably

reduces risk.

Fiduciary Duty

Sustainable investment professionals have a fiduciary duty to manage risk and return on behalf of their clients; not to consider material ESG factors would be a breach of duty.

Core Element of Investing

Institutional asset owners, among the most sophisticated investment management professionals, view investing using ESG metrics as “a core element of investing,” according to a Morningstar study.

Long-Term Benefits

Numerous studies point to the long-term benefits of sustainable investing.

Investors and their advisors are becoming

more sophisticated.

Individuals have a range of educational tools and resources to help them find best-in-class sustainable investment managers and approaches. Examples include Morningstar, As You Sow and the US SIF Foundation's Education Center.

Increasingly, financial advisors are building sustainable practices and completing advanced training and accreditation.

Read more about advisor education
The Chartered SRI Counselor (CSRIC) designation from Kaplan/College for Financial Planning is a rigorous program. Advisors with the CSRIC designation help investors select sustainable investments and avoid products that don’t align with their environmental and social priorities. 

Learn more about the CSRIC designation

The sustainable investment industry has

grown in sophistication and rigor.

Industry leaders and practitioners are encouraged to adopt and follow industry best practices:

INCREASE
transparency and
accountability

DEEPEN
incorporation of
ESG factors

PARTICIPATE
in field building
to amplify impact

ENGAGE
in investor advocacy
to advance ESG issues

MEASURE
and manage
impact

ADVANCE
public policy on
sustainable investing

This website is presented by US SIF: The Forum for Sustainable and Responsible Investment, the leading voice advancing sustainable investing across all asset classes. Its mission is to rapidly shift investment practices toward sustainability, focusing on long-term investment and the generation of positive social and environmental impacts. US SIF’s hundreds of members represent more than $5 trillion in assets under advisement or management.  

US SIF is supported in its work by the US SIF Foundation, a 501(C)(3) organization that undertakes educational, research and programmatic activities to advance the mission of US SIF.

View additional resources from US SIF

Copyright 2022 US SIF

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