What is responsible investing?

What does it mean to invest responsibly?

When you invest responsibly, you usually place extra weight on analysing your investments with three factors in mind:

• Environmental issues such as CO2 reduction
• Social issues such as workers’ rights
• Governance issues such as avoiding corruption.

In brief, these are called ESG factors and are often also what is referred to when discussing sustainability from an investment perspective.

Strategies for ESG investments

There are several strategies to consider and combine if you are an investor with focus on responsible investing, in addition to a profitable return:

• You can, for example, exclude companies you don’t find sustainable for your investments – so-called negative screening.
   
• You can buy stocks from companies with high sustainability standards.
   
• You can focus on a specific theme like clean water or waste management and invest in companies that work within this area.
   
• You can practise active ownership where you use your ownership to influence companies to make more sustainable decisions.

When pursuing an ESG investment strategy, there are many different products to choose from. You can invest in bonds, index funds, exchange-traded funds (ETFs), mutual funds or company stocks, all depending on how much you want to be involved in the research, screening and monitoring of your investment.

If you decide to actively manage your investment, many banks and analysts publish lists of the best ESG-rated stocks, which can help you in your research for the investment that fits your strategy. If you want to be less involved, funds can be a relevant option.

The number of ESG-focused funds is constantly growing as more and more investors are considering environmental, social and corporate governance factors before placing money and resources in a particular company or fund. Be aware of the criteria for the individual fund to ensure that the companies included actually meet your understanding of sustainability.

Impact investing

For investors who want to focus even more on creating impact, impact investing can be an option. Impact investing is when you as an investor choose your investments with the intention to generate measurable, beneficial social or environmental effects in addition to financial gains.

Impact investing is a category of sustainable investments, but goes further than investments which integrate a systematic reflection on ESG-related risk and opportunities. It also aims to address social and climate challenges and goals and often uses the UN’s Sustainable Development Goals as a starting point.