The investment world is continuously evolving, with one of the most notable transformations of our generation under way. Increasingly, investors no longer wish to keep their good intentions for society relegated to charitable giving but are also looking to “do good” with their investments. We think the best way to achieve these personal and financial goals is to apply a set of socially conscious standards that focuses on the long-term sustainability and ethical behavior of a company, which is referred to as “sustainable investing.”
Sustainable investing comes in many forms and can mean different things to different people. We seek to clear the air on this changing space and offer some perspective on what we view as one of the most effective ways of investing to generate long-term gains from both the societal and financial perspectives.
At its core, sustainable investing is redefining what many investors mean by “long-term investing.” Historically, “long term” has been consistent with one or more complete market cycles spanning many years. In recent years, we feel like that has devolved into an increasingly short-term focus, concentrating on quarterly performance (encouraged by the hedge fund industry over the past two decades). We believe the exceptional growth of sustainable investing has, in part, been a response to the flaws of this short-term thinking. To achieve their goals, investors are recognizing the necessity of maintaining a longer investment horizon that includes the expected impact companies have on society.
As we will discuss in a later section, sustainable investing encourages companies to focus less on near-term earnings targets and more on long–term profitability. Importantly, sustainable investors also believe that, over time, this type of focus from a company will yield higher returns. Said differently, sustainable investing is a way of achieving both social and financial goals.
This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service or as a determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situations, and particular needs. This article is not designed or intended to provide financial, tax, legal, accounting, investment, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought.
All investments involve risks, including possible loss of principal. There is no assurance that any investment strategy will be successful. Diversification does not ensure a profit or guarantee against a loss.
Please see additional important disclosures at the end of the article.