Investing with a Purpose: The Rise of Ethical and Sustainable Investment
Monday, Oct 9, 2023
When you take up something new in life, what is the one thing that motivates you to do so? Be it learning to play an instrument or picking up a new book, more often than not, it is purpose-driven.
Having purpose implies a deep resonance with the inner self, don’t you agree?
Well, if you do, you’re in for a very interesting read ahead.
But you must be wondering how this philosophical perspective is going to help you make money. Even though this blog seems very counter-intuitive to every other investment-related writeup you’ve ever read, let us introduce you to ‘Conscious Capitalism’.
Investors in this century are quite complex. Not only do they want immediate validation or instant gratification and are quick to judge upon generic norms that have been in existence, but they also have deeply embedded negative sentiments about the industrial age that thrived in the previous century, in the process of which they disturbed the biosphere and ecosystems at a global level.
This brings us to ‘Socially Responsible Investing’.
In this blog, let us take a deep dive into the intricacies of ethical and sustainable investments. We will discuss the social impact that these investments have the capability to make on the world and address the following questions that revolve around this concept:
- Does being a socially conscious investor imply an inherent disadvantage compared to a pure returns-oriented traditional investor?
- How much real change is possible if this investment mindset thrives in the coming decades?
- How do you really metricize ESG goals and stay true to your beliefs?
- And
finally, what is the best way to make ethical and sustainable investments?
Does being a socially conscious investor imply an inherent disadvantage compared to a pure returns-oriented traditional investor?
Traditionally, investors look at only one thing when making any investment. And that is, how much return will this investment potentially make me in a certain time frame? Not that having this cold and rational sentiment increases your investment yield in any way. In fact, in the past decade, there has been a surge of interest in ESG-related investment mediums.
ESG refers to environmental, social, and governance. If you consider these as metrics and negatively screen the list of companies that you can invest in, you will realize that so many companies fail to comply with the goals of ESG. Companies in the domain of mining, coal companies, tobacco companies, companies involved in gambling, alcohol, etc. Basically, if a company does not respect the environment and whose operations negatively affect it, and those companies that do not have society’s best interest at the crux of the business model, all such companies are filtered off in the negative screening by a socially responsible investor.
Any company that adheres to the policies and is engaged in the efforts of social justice, which include factors such as gender equality, rationally helping in the battle against climate change by enabling fossil fuel-electric transition, or building and researching in the clean energy domain, falls under the ESG investment radar.
So, now that you know what companies are relevant, are there any arguments against investing in such companies?
No, for sure!
These are still publicly listed companies that operate for profit. The only difference is in the mind of the investor. If you collect a few such companies and put them in one basket, you get a fund that is now focused on social criteria that cater to your beliefs. If that helps you stick with your investment and achieve your financial goals, then that is an excellent strategy!
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