February 22, 2021
SUSTAINABLE INVESTING YEAR IN REVIEW
Jason Hoody, CFA, Head of Investment Manager Research, LPL Financial
Jeffrey Buchbinder, CFA, Equity Strategist, LPL Financial
Increasingly more people realize that their sustainability concerns can be address through their investments. As more investors embark on the sustainable investing journey—learn what it is, why one pursues it and how to do it—assets into sustainable funds will continue and investors will have more choices from which to construct sustainable investing portfolios.
Individuals and institutions are increasingly concerned about sustainability issues. A World Economic Forum survey from the fall of 2020 concluded that 79% of American respondents agreed with the following statement: “I want the world to change significantly and become more sustainable and equitable rather than returning to how it was before the COVID-19 crisis.” We take a look at the growth of investor interest in sustainable investing while answering some common questions about it.
WHAT IS SUSTAINABLE INVESTING
You may have heard various terms used to describe sustainable investing—socially responsible investing, ethical investing, impact investing, among others. Although each of these terms is relevant to specific financial industry actors, types of clients, investment strategies, or subsectors of activity, they fundamentally describe the same thing:
Investments made with the intention of generating a positive environmental, social, and governance (ESG) impact alongside a financial return.
Investors commonly use sustainable investing to pursue two overarching goals:
•To protect and enhance long-term financial value through addressing ESG risks or investing in solutions to solve environmental and social challenges.
•To protect, enhance, or otherwise positively impact the long-term health of the environment or society through expressing ESG values.
Some examples of ESG issues that may be considered in an investment strategy:
Environmental: Greenhouse gas emissions, energy management, and water and wastewater management.
Social: Access and affordability, labor relations, and diversity and inclusion.
Governance: Compensation and benefits, data security, and supply chain management.