Sustainability has been at the forefront of business operations in the 21st century. Going beyond basic measures, firms are actively looking to discover new methods of increasing their level of sustainability.
To a good extent, this is due to government mandated environmental, social, and governance (ESG) guidelines and higher consumer awareness. One of the methods is sustainable investing.
Discover the reasons for shifting towards sustainable investing and the types of financial products for investors.
Sustainable investing is based on specified ESG factors. It ranges from measuring the carbon footprint of the firm to how firms manage stakeholders to corporate governance.
A combination of these working in collaboration determines which investments are suitable for sustainable investing.
Drivers of Sustainable Investing
There are several factors that are motivating firms to work towards sustainable investing.
Rising Awareness of Impact and Demand
With new technology, investors are becoming increasingly aware of their impact on the environment and its consequences. Climate change is an important talking point, and the public has been demanding firms to better align their operations in a sustainable manner.
Changes in Government Regulations
Governments around the world are recognizing the harmful effects of corporations. Thus, regulatory bodies are designing and implementing policies that outline operational strategies for firms. These provide guidelines and rules to follow to promote sustainability.
Also Read: Beyond Bitcoin Mining: The Environmental Impact
Financial Products for Sustainable Investing
There are many different types of products for investors and firms to undertake for sustainable investing.
Sustainable Mutual Funds
These funds focus specifically on investing in firms that display a strong alignment with ESG measures or other sustainability methods. This can be done through proper screening of the companies and measuring their impact on the environment and society.
Green Bonds
To raise capital for projects that deliver environmental benefits, public, private, or multinational entities can raise green bonds. They are fixed-income securities that also provide tax incentives for investors.
Social Impact Bonds
These are contract-based bonds provided by some governing authority which uses the capital to pay for better social outcomes. Then, the savings generated are passed on to the investors as returns.
Under this method, the returns are not particularly high or might be zero as they are dependent on the success the scheme generates. Thus, it is seen as a way for investors to give back to the community.
Closing Thoughts
The financial landscape is ever-changing and sustainable investing is playing its role in aligning profit with people and planet.