Environmentally friendly investments or socially in tune investments have become more and more popular over the past 10 years. Their good performance during the Covid crisis has accelerated their adoption by a larger proportion of investors, including retail investors.
Most of these investments claim they are in line with the UN Sustainable Development Goals or based on ESG or ISR principles. What exactly do these different denominations refer to?
The UN in 2015 set 17 Sustainable Development Goals (SDGs) an offshoot of the Millennium Development Goals (MDGs) which was from the previous 15 years. Sustainable Development Goals which include zero hunger, quality education, clean energy, reduced inequalities, sustainable cities and communities are some of the targets set as a call to action for nations around the world. The targets which are set to be achieved by 2030 are aimed at preserving the planet and making the earth a global healthy village with the 17th goal being partnership for the goals. With more support, awareness, and partnership more companies will align with these goals to be more appealing to forward-looking investors.
Forward-looking investors are those that are vested in Socially Responsible Investments (SRI) or even Impact Investments. Increasingly investors are on the lookout for the ESG reports or Sustainability reports of companies and not only their financial reports in making their investment choices. ESG meaning Environment, Social and Governance are pillars that encompass an array of criteria summed up into an ESG score or rating. These are used in accessing how sustainably inclined companies are.