Lean, Green Money Machine

Putting your money to good use and seeing returns—investing within an ESG framework has never been more popular, but careful planning is required to identify issues like greenwashing

- Lauren James

Participating in a beach clean-up, going vegan and turning off lights when you leave a room all help the environment, but few things put your money where your mouth is like investing in sustainable businesses. ESG (environmental, social and governance) investing has become one of the dominant trends in finance in recent years, as it allows investors to align their ethics with financial gain—two concepts that can be antithetical.

However, ESG isn’t just about feeling virtuous when you go to sleep at night: as a set of criteria, it is one of the best routes to obtaining long-term rewards, as climate change becomes an ever more crucial consideration for businesses around the world.

“ESG became even more important through the pandemic,” says Jenn-Hui Tan, global head of stewardship and sustainable investing at investment firm Fidelity International. “If you’re not considering ESG factors, on quite a basic level you’re failing to consider the risks, [which] can lead to missed opportunities.” From electric vehicles to alternative protein to decarbonisation, portfolios that integrate ESG considerations mitigate risk and place investors in a better position to capture upside—a rise in value.

Ethical strategies date back to the 1960s, when investors would exclude companies and industries that they didn’t agree with, though the term “ESG” was only coined in 2004. The sector has since grown exponentially. Sustainable investment in the major financial markets globally was worth US$35.3 trillion and represented 36 per cent of all professionally managed assets across North America, Australasia and Europe, marking a 15 per cent growth from 2018 to 2020, a report by the Global Sustainable Investment Alliance showed last year.