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7 sustainable investment trends
Discover 7 trends in sustainable investing and find out how you can combine sustainability and profitability.
Sustainable investing is not just a trend, it can help protect the planet and deliver solid financial returns in the long term. In this article, we will look at 7 sustainable investing options to consider.
What is sustainable investing?
Sustainable investing involves allocating resources to economic activities that promote environmental and social (ESG) benefits. They must focus on issues such as managing natural resources efficiently, reducing emissions and promoting social cohesion and inclusion. They must also meet strict governance criteria, such as ethics and transparency. In essence, sustainable investing is about choosing opportunities that not only seek a financial return, but also contribute to a more balanced and responsible future.
7 sustainable investments in the spotlight
If you’re looking for a way to invest sustainably, here are some suggestions.
1. Green Bonds, contributing to a greener economy
Green bonds are debt instruments issued by governments, public or private entities specifically to finance projects and activities that have positive environmental benefits and contribute to sustainability.
The capital raised through the issuance of green bonds is earmarked for projects such as renewable energy, energy efficiency, sustainable mobility, waste management and water conservation. In other words, initiatives that have a positive impact on the environment.
Value of Green Bonds issued globally from 2014 to 2023
Billion U.S. dollars
[Fonte: Statista]
A key feature of Green Bonds is transparency. Issuers are required to report in detail on how the capital is used and how the environmental impact is assessed and disclosed.
Green Bonds therefore provide a transparent and measurable way to support sustainable projects and help transition to a greener economy.
2. Social Bonds, giving back to society
Social bonds are financial instruments that use the funds raised to finance projects that have a positive social impact and contribute to the well-being of communities.Projects typically focus on education, health, affordable housing, employment, gender equality and other key social issues.The market for Social Bonds is booming, reflecting the growing interest in investments that have a positive social impact.
[Fonte: BNP Paribas]
Social Bonds issuers are also required to report on how the capital is used and the social impact it has. This type of instrument allows investors to integrate their own social concerns into their choices and decisions, promoting positive change in communities and contributing to a more inclusive and just society.
3. Sustainability Linked Bonds, para investir num futuro responsável
Sustainability Linked Bonds are debt instruments that finance companies that commit to meeting certain sustainability performance targets. They differ from Green Bonds and Social Bonds in terms of structure and focus. Rather than funding specific projects and specific activities, Sustainability Linked Bonds are linked to broad environmental, social or governance (ESG) performance targets that the issuing company commits to meet.
The market for Sustainability Linked Bonds is growing steadily, as are Green and Social Bonds.
[Fonte: S&P Global]
Sustainability Linked Bonds incentivise companies to commit to ambitious and measurable ESG targets by linking the cost of financing to the achievement of these targets. If the company fails to meet these targets, it could face financial penalties.
Issuers of Sustainability Linked Bonds must report transparently on their progress towards the targets they have set. Investors can thus finance the sustainable transformation of companies in sectors that have historically had a major environmental or social impact, encouraging a shift towards more responsible practices.
4. Sustainable ETFs, investing with purpose
ETFs that incorporate one or more ESG factors into their characteristics or objectives are another sustainable investment trend. They allow investors to align their personal values with their strategic choices and to support companies that operate in an environmentally, socially and governance responsible manner.
Although flows into sustainable ETFs declined in 2023 compared to 2022, ETFs remain a popular investment vehicle. In fact, new investments in sustainable ETFs accounted for 29% of ETF investment flows in 2023, according to Morningstar data cited by FundsPeople.
In addition, investing in ETFs allows for diversification that would otherwise be difficult to achieve. In other words, investors don't just buy shares in companies with ESG standards, they also include a wider range of assets, such as a diversification of equities, corporate bonds or sustainable infrastructure funds.
Another important factor is that, as demand for ESG funds grows, the industry is developing more advanced and consistent ESG metrics and reporting standards, enabling a more accurate assessment of the ESG performance of companies and helping investors make more informed decisions.
5. Sustainable Investment Funds
Mutual Funds, like ETFs, are increasingly taking ESG trends into account.
There are two types of investment approach within the universe of sustainability investment funds. On the one hand, there are thematic funds, such as renewable energy funds, which focus on specific sectors that directly promote sustainable environmental practices.
On the other hand, traditional investment funds are increasingly integrating ESG criteria into their strategies. While not solely focused on sustainability, many of these funds require companies in which they invest to demonstrate concrete environmental and social responsibility commitments. These companies are encouraged to adopt more sustainable practices, such as reducing emissions, managing resources efficiently and strengthening transparency and ethics in their governance processes.
Thanks to this development, even investors in generalist funds can be part of a more sustainable future. The increasing integration of ESG criteria into funds with different profiles, both thematic and traditional, is diversifying the options for those who want to invest responsibly, balancing the search for profitability with a positive impact on the environment and society. It is even possible to analyse sustainability ratings, as is the case with Morningstar’s Globes.
6. Impact investing, driving change
Impact investing channels capital into projects that combine social and environmental issues, creating a dual positive impact. The aim is to respond to the increasingly complex challenges facing society. It can include areas such as health, education, gender equality, poverty, inclusive employment and access to technology, providing access to a very diverse investment portfolio.In addition, investors (with materially relevant/qualified positions) can take an active role in the companies in which they invest, such as voting at meetings, planning responsible practices and working with management to improve ESG performance.
Impact investing is also a way to diversify an investment portfolio, as the assets are not strictly correlated with traditional stock or bond market movements. It’s an innovative approach that offers opportunities for those who want to make a difference while increasing the value of their assets.
In other words, it’s important to emphasise that impact investing is not just about optimising profitability, but also about making a real difference to society.
7. Investing in renewable energies
Another strategy for those looking to combine profitability with sustainability is to invest directly in shares of renewable energy companies.
[Fonte: Rankia]
The renewable energy sector is growing rapidly in various regions of the world, including emerging markets, driven by technological advances and public policies that encourage the adoption of sustainable energy sources. Examples include the reduction in the cost of technologies such as solar panels and initiatives such as the European Green Deal and the European Union’s REPowerEU plan.
The time is right to invest in projects with positive impacts and potential returns, given tax incentives and the global focus on decarbonisation. However, it is important for investors to be aware of the challenges, such as the intermittent nature of renewable energy and the potential for regulatory changes.
Banco Carregosa, na linha da frente em investimentos sustentáveis
Sustainable investing contributes to the protection of humanity and the planet, and offers the opportunity to be part of growing industries that are revolutionising the global economy.
However, the analysis and management of your portfolio, like any other type of investment, requires prudence. Take advantage of the advice of Banco Carregosa's team of experts and benefit from our strategic insight to ensure the safe management of your assets.