Sustainable investing (SI) has become mainstream with trillions of dollars now in assets managed globally under principles that go back over 300 years. But there are many shades of green, from using simple exclusions to more advanced impact investing. In this chapter, we look at the history of sustainable investing, the shapes and forms it can take, and its present state.

Learning objectives

• How responsible and sustainable investing are defined internationally

• Its rise from an 18th century protest movement to a mainstream style

• The vast sums of money now dedicated to sustainable investing

We’ve seen how ESG factors form the bedrock of the modern sustainable investment process. In this chapter, we will discuss the methods and relevance of integrating financially material ESG issues into the investment process across all asset classes.

Learning objectives

• What ESG integration means using financial materiality

• How it works across all asset classes – not just equities

• The emphasis on understanding forward-looking data

The concept of investing progressively more sustainably means moving from single to double materiality, and then to additionality. In this chapter, we discuss how these approaches underpin the spectrum of responsible, sustainable and then impact investing.

Learning objectives

• Financial versus double materiality in progressively adopting SI

• The differing objectives across the spectrum of sustainability

• Why impact investing has its own spectrum depending on motivation

Sustainable investing is connected to some of the biggest issues of our times, and like anything else in life, these are changing times. In this chapter, we explain how three major trends are shaping the direction for investing more sustainably or responsibly: scrutiny from society, regulation and relevance for investors.

Learning objectives

• How scrutiny from society is making many old practices unacceptable

• The role of regulation is defining what constitutes sustainable funds

• The relevance for investors led by the increasing impact of climate change

There can be no clearer SI objective than ensuring a sustainable climate. In this chapter, we look at how the battle to combat accelerating climate change has focused on the transition toward net zero emissions through global decarbonization.

Learning objectives

• How the net zero concept came about and the politics affecting it

• Investing in the net zero journey rather than the destination

• Assessing decarbonization pathways, and identifying the leaders and laggards
  
  

Active ownership is an important part of sustainable investing. In this chapter, we explain what it is, and how it is increasingly changing corporate behavior.

Learning objectives

• Why it is important for asset owners to use their influence

• How voting and engagement can improve corporate behavior

• The importance of collaborations to achieve change collectively
  
  

We’ve seen so far what constitutes sustainable investing, and in a skeptical world, it is just as important to know what it isn’t. In this chapter, we discuss three of the more common myths about SI: its impact on performance, the availability of data, and whether it only targets the currently sustainable.

Learning objectives

• Why sustainable investing does not have to mean sacrificing performance

• There is ample data, the supply of which has been boosted by regulation

• You don’t need to target companies that are already proven to be sustainable

The success of using sustainability techniques is becoming increasingly evident in how it is applied to real-life situations, from applying ESG integration in portfolio management, to engagement to improve ESG factors at companies and countries, and pursuit of the SDGs. In this chapter, we give real-life examples of how it works.

Learning objectives

• How ESG integration informs choices for stocks to buy for portfolios

• The results of corporate engagement and sovereign engagement

• How infrastructure-orientated SDGs are more investible than others

In summary, we can recap on what is sustainable investing. This final chapter highlights the main points from the previous eight.