What is Sustainable Investing?

In recent months, terms like “ESG” and “Sustainable Investing” have come under scrutiny in mainstream media as the public demands greater transparency into corporate and investing practices.

At the Pension Boards, we have received questions from members about what these terms really mean, and how to best understand the impact of evolving best practices. The following definitions aim to provide a reference guide you can use as you read the remaining articles in this issue of the Generations Journal, where we explore the ongoing evolution of investing as a tool to mitigate the impact of climate change.

What is sustainable investing?

Sustainable investing is an investing philosophy wherein an investor takes a company’s environmental, social, and corporate governance (ESG) factors into account. This allows investment dollars to be used as a tool to promote positive societal impact and corporate responsibility without sacrificing long-term financial returns. Strategies for investing sustainably include avoiding companies that conflict with ESG principles and seeking out industries that are inherently more sustainable. www.hsbc.co.uk/wealth/articles/what-is-sustainable-investing

What are some examples of sustainable investments?

Following the environmental, social, and corporate governance (ESG) framework, there are a wide variety of investments that can be considered “sustainable.” Industries that promote good environmental practices, via more renewable energy sources or by combating air and water pollution, are perhaps the first things that come to mind for most people. However, sustainable investing can also include investing in companies that support human rights initiatives or a more ethical corporate culture. www.hsbc.co.uk/wealth/articles/what-is-sustainable-investing/

What is ESG?

ESG (Environmental, Social, Governance) investors seek to ensure the companies they fund are responsible stewards of the environment, good corporate citizens, and are led by accountable managers. ESG investing is sometimes referred to as sustainable investing, responsible investing, impact investing, or socially responsible investing (SRI). The rapid growth of ESG investment funds in recent years has led to claims that companies have been insincere or misleading in touting their ESG accomplishments. www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp

How is ESG investing different from sustainable investing?

ESG and sustainability are closely related. ESG investing screens companies based on criteria related to being pro-social, environmentally friendly, and with good corporate governance. Together these features can lead to sustainability. ESG, therefore, looks at how a company’s management and stakeholders make decisions; sustainability considers the impact of those decisions on the world. www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp

What are green bonds?

Green bonds are designated bonds intended to encourage sustainability and to support climate-related or other types of special environmental projects. More specifically, green bonds finance projects aimed at energy efficiency, pollution prevention, sustainable agriculture, fishery and forestry, the protection of aquatic and terrestrial ecosystems, clean transportation, clean water, and sustainable water management. They also finance the cultivation of environmentally friendly technologies and the mitigation of climate change. www.investopedia.com/terms/g/green-bond.asp

What is “greenwashing”?

Greenwashing is the process of conveying a false impression or misleading information about how a company’s products are environmentally sound. Greenwashing involves making an unsubstantiated claim to deceive consumers into believing that a company’s products are environmentally friendly or have a greater positive environmental impact than they actually do. https://www.investopedia.com/terms/g/greenwashing.asp