Episode Details

Mobilizing Investors to Build a More Sustainable Global Economy

As the effects of climate change rise in prevalence, all facets of the global economy will be affected. In order to address many of the global environmental crises of today, such as biodiversity loss and extreme drought, entrepreneurs are looking into sustainable investment initiatives as a tool for change. Sustainable investing is a process that directs investment capital to companies and businesses actively working to prevent environmental destruction. Sustainable investments often follow an Environmental, Social, and Corporate Governance (ESG) framework, which seeks to promote socially conscious investments. Similar to Corporate Social Responsibility (CSR), which refers to a company’s commitment to operating ethically, ESG goes one step further in providing an assessable outcome of a company’s overall sustainability performance. Thus, ESG lays a foundation for investors in determining which corporations operate sustainably. 

Current Climate of Sustainable Investment

From 2021 to 2026, institutional investment in ESG projects is expected to increase by 84%. The World Economic Forum recently published a report noting that over $200 billion is required annually in order to meet adaptation and resilience investment targets, which is three times the current funding. Such investing in adaptation and resilience could reduce exposure to climate risks and yield financial benefits for stakeholders involved. Although climate financing is slowly on the rise, there remains minimal progress in climate-vulnerable and high-emission countries. 

There are various types of sustainable investing, operating through registered investment companies, alternative investment funds and community investments. The US Sustainable Investment Forum identified 645 registered investment companies with $1.2 trillion sustainable investment AUM in 2022. Not only does sustainable investment cover private equity investments, but also cash, fixed income, and alternative investments. Sustainable investments, like conventional investing, receive a return on their investments. Reports from the Morgan Stanley Institute for Sustainable Investing found no financial trade-off between sustainable investing compared to traditional investment initiatives. 

Does sustainable investing provide hope for the future?

Investing in sustainable industry, infrastructure, and business has the potential to provide a more climate-proof economy for all. For private investors, effective investments in areas vulnerable to climate change could reduce disruptions in the supply chain, thereby boosting labor productivity and lowering operational costs. As such, companies will have the tools in place to be able to respond to vulnerabilities when they arise while still maintaining a profit.