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Financing a Greener Future: The Rise of Sustainable Investing
What defines a successful business? Where once just the bottom line was top priority, the pressure cooker of a changing planet has placed fresh importance on non-financial measures of value. In this zeitgeist, where profitability is inextricably linked with sustainability and the conscientious consumer is king, a new set of environmental, social, and governance (ESG) factors is being used to determine which global firms merit investment.
A princely sum
Sustainability investing – a form of ‘green’ investing that promises positive returns for both people and the planet – has fast transitioned from a niche concern into big business, as climate-themed funds alone surged by 48 percent in 2020.1 And it has now received the royal seal of approval with the announcement that Prince Harry and Meghan, the Duchess of Sussex, will join Ethic, a fintech asset manager in the ESG space, as “impact partners” and investors.2 Ethic, the manager of over $1.3 billion in assets at the time of the October 2021 deal, screens companies and sectors based on social responsibility criteria, including racial justice, climate policy, and labor issues. With its new Sustainability for Everyone online platform, the company aims to empower users to score their own portfolio according to these dimensions, encouraging a broad re-examination of how investors “live, give, advocate, learn, work, create, and invest.”3 In a statement on their website, Harry and Meghan explain what motivated the partnership: “We believe it’s time for more people to have a seat at the table when decisions are made that impact everyone. We want to rethink the nature of investing to help solve the global issues we all face.”4
“We believe it’s time for more people to have a seat at the table when decisions are made that impact everyone. We want to rethink the nature of investing to help solve the global issues we all face.”
According to the Global Investment Alliance, the market for ESG investing topped an estimated $35 trillion in 2020, accounting for as much as 36 percent of all professionally managed assets globally.5 However, the space is also facing growing scrutiny, as vastly varying industry benchmarks and the threat of penalties for missing promised goals has led to instances of ‘greenwashing’, whereby funds that resemble any other non-green investment still claim a sustainability focus.6 In fact, in the week leading up to news of Harry and Meghan’s deal, asset management titan Deutsche Bank was compelled to order a probe of its investment unit, after being rocked by allegations of greenwashing from its former sustainability head.7
Laying down the law
Such controversies have prompted the International Monetary Fund (IMF) to demand that governments do more to protect investors from companies making misleading claims regarding their environmental credentials.8 Europe has led the way by instituting a regulatory framework that clearly defines sustainable investment, resulting in a smaller but more credible market for ESG products. And with global net-zero objectives gaining traction and significant tax incentives on offer to the firms that help reach them, policymakers the world over are set to follow suit.9
Sustainable (or green) investing is just one of many new ways in which global firms and individuals are aligning their decision-making with environmental and social concerns. By weaving ESG criteria into their organizational fabric, business leaders increasingly hope to be the promoters of sustainable development and champions of positive change.
GetSmarter, a 2U, Inc. brand, collaborates with world-leading universities and institutions to design and deliver premium online short courses across the field of sustainability, including sustainable finance and investment. Guided by expert faculty, you can gain a practical understanding of today’s ESG criteria, and explore tactics for integrating these into your investment strategy. On the University of Cambridge Institute for Sustainability Leadership (CISL) Business Sustainability Management online short course, you’ll develop the skills to drive sustainable business in the green economy of tomorrow.
Play your part in the transition to a greener economy.
- 1 Natalucci, F. et al. (Oct, 2021). ‘How Investment Funds Can Drive the Green Transition’. Retrieved from IMF.
- 2 Ross Sorkin, A. et al. (Oct, 2021). ‘Harry and Meghan Get into Finance’. Retrieved from The New York Times.
- 3 (Nd). ‘Introducing Sustainability for Everyone’. Retrieved from Ethic.
- 4 (Oct, 2021). ‘Investing in each other’. Retrieved from Archewell.
- 5 (Oct, 2021). ‘Harry & Meghan join socially conscious ESG investing craze’. Retrieved from Al Jazeera.
- 6 Quinson, T. (Sep, 2021). ‘ESG scores are riddled with ‘greenwashing’. Retrieved from Business Day.
- 7 (Oct, 2021). ‘New probe of Deutsche Bank unit after claims of ‘greenwashing’. Retrieved from Business Day.
- 8 Flood, C. (Oct, 2021). ‘Tackle greenwashing to boost sustainable investment, says IMF’. Retrieved from Financial Times.
- 9 (Oct, 2021). ‘Harry & Meghan join socially conscious ESG investing craze’. Retrieved from Al Jazeera.