Portfolio 21 recently released a new publication, titled “Approaches to Environmental Investing,” which is intended to illustrate the key concepts in this field and provide investors with a framework for evaluating various investment strategies.
We offer this paper, written in collaboration with Sarah Cleveland Consulting, to fill a need we have observed among investors and advisors to have a clearer understanding of how environmental consideration are applied in the investment process. We also seek to resolve some confusion about the labels applied to this style of investing—Environmental, Sustainable, Responsible, and ESG (Environmental, Social and Corporate Governance) are all commonly used, but often the strategies they are applied to look quite different.
Although it may seem that Sustainable Investing and Environmental Investing could be one in the same, the term “sustainable” has now been applied to so many strategies, including those that have nothing to do with environmental considerations, that it is now virtually meaningless.
There are many reasons investors may pursue environmental investing. They may seek to improve the resilience of our society, to learn about environmental risks in the investment process, or to find new opportunities in emerging technologies. As interest has grown, we have observed many investment managers rush to throw their hat in the ring and offer a solution. However, across the industry, methods of environmental research and integration into the investment strategy vary widely. It can be difficult to glean much from the label of a strategy; investors need to ask real questions in order to discern the rigor and quality of the investment process behind the label.