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What is Sustainable Investing?

By Edited Jan 1, 2016 0 1

 

Sustainable Investing is a term used to describe an investment that seeks to maximize return on capital AND provide minimum impact on the environment. It is often used interchangeably with Green Investment and Socially Responsible Investment but there are slight nuances between the different phrases.

Investments can be made into any company or project where the investor believes that their capital will be returned with additional growth and minimal risk. Common types of investments are buying ownership in companies via the stock market, buying bonds directly from a government or municipality, or purchasing real estate.

A sustainable investment can fall into any of these three categories, provided that the investment meets the qualifications to be considered a sustainable company or business. 

First, the company must do no unnecessary damage to the environment. For instance, a lumber company that cuts down trees for lumber may or may not be a sustainable company to invest in, based on its impact on the environment. If the lumber company clear cuts old growth forests and causes a population of birds to go extinct, it is not a company that practices sustainability. If the lumbering company engages in selective tree cutting and replants tress in the areas that are cut down, they could be considered a sustainable company and a sustainable investment.

Secondly, a sustainable investment must minimize waste and proactively recycle. Offices around the world need to use billions of sheets of paper every day to process sales and document business. A  paperless world is still decades away, but business’s can proactively recycle the paper it uses to save money AND save tress from being cut down. This creates a win-win situation - the business and the consumer are saving money, and minimizing the use of resources. 

Thirdly, a sustainable investment must always seek to empower the employees for which it provides jobs. The company should enforce child labor laws, pay workers a living wage, reasonably prevent unsafe working conditions, and provide for an equal opportunity working environment. As manufacturing is increasingly done in third world countries, it is more important than ever to ensure the dignity and safety of all workers around the globe.

Investors looking to learn more about sustainable investing have a multitude of resources that they can use. For the enterprising investor, most companies have annual reports that outline their commitment (or lack thereof) to sustainable practices.

Remember, there are two components to a sustainable investment: One, the company must offer an acceptable return on capital for the risk taken, and secondly, the company must minimize it’s impact on the environment, minimize waste, proactively recycle, and empower their employees.


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Comments

May 7, 2011 7:20am
yackers1
I was never really sure what a "sustainable" investment was before, but you have managed to clear it up. A great article there.
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