By South Africa is expected to experience a heightened focus on sustainability. Sustainability Week Africa, held from 24–25 October, will centre on how businesses can accelerate sustainable development across the continent and mitigate the worst effects of climate change. At the same time, the annual Sustainability Summit will bring together stakeholders to explore new strategies for sustainable business and investment practices.
With sustainability so high on the agenda, there is a growing interest in sustainable investments. Investors, including online traders, are now seeking ways to make their portfolios more environmentally and socially responsible. But what does a sustainable investment look like?
ESG – A guiding framework for sustainable investments
When assessing investments for their sustainability credentials, many traders use the ESG framework. Roger Eskinazi, Managing Partner at Tickmill, explains that ESG stands for environmental, social, and governance factors.
“The environmental aspect focuses on how a company’s operations impact the planet, including efforts to reduce carbon emissions, minimise waste, and adopt renewable energy, while the social component examines the company’s influence on people, like its support for fair labour practices, diversity, and community upliftment. Governance, on the other hand, assesses a company’s management practices, looking at things like ethical leadership, transparency, and how well shareholders are treated.”
Eskinazi goes on to say that for traders, having a firm handle on each of these ESG factors is crucial for identifying quality sustainable investments. “ESG not only helps to minimise risk, but also supports companies that are having a positive impact on the world. Sustainable investments are becoming increasingly mainstream, and we expect this trend to continue as awareness and interest in the asset class grows.”
The rise of sustainable investing
Sustainable investing has grown exponentially in recent years as both institutional and retail investors realise that they can align their financial goals with their values. According to a recent Morgan Stanley report, more than half (54%) of individual investors plan to boost their allocations to sustainable investments in 2024, while more than 70% believe strong ESG practices can lead to higher returns.
Closely connected to ESG, the green taxonomy is another critical tool for identifying sustainable investments. It provides clear guidelines to assess whether an investment is truly environmentally sustainable, helping to differentiate between genuinely sustainable assets and those engaged in “greenwashing” – a practice where companies falsely present their products or activities as environmentally friendly.
A long-term perspective
Sustainable investments are more than just a passing trend; they are becoming an integral part of financial markets as the global community works towards a more sustainable, inclusive, and resilient economy.
For traders looking to invest sustainably, thorough research is essential, as is considering ESG factors and utilising tools like the green taxonomy. “Investing sustainably will allow traders to not only seek financial returns, but also to make a meaningful contribution to the planet’s future. It’s a way to invest in both profit and purpose,” concludes Eskinazi.