Sustainable Investing: What Every SME Should Know

Sustainable investing receives much attention in the modern community. Although companies often consider sustainable investing from the viewpoint of a recipient of funding, each company is an investor too, as it takes decisions on what B2B services to choose. Choosing to invest in a sustainable business gives higher chances to increase returns on investment and promotes global sustainability.

What is Sustainable Investing?

Sustainable investing, also known as socially responsible investing (SPI) refers to the practice of basing investment decisions on the consideration of traditional financial factors along with the factors related to ESG reporting:

· Environment impact (energy efficiency, greenhouse gas emissions, waste)

· Governance (corruption and bribery, board diversity, executive pay)

· Social impact (work standards, human rights, staff relations)

Sustainable investing is quickly turning into the mainstream. According to the recent survey of Morgan Stanley Institute, 71% of respondents are interested in sustainable investing and 65% are sure that it will become more popular in the next few years.

More and more investors are ready to support sustainable businesses and green initiatives and move their funds into eco-friendly companies. These investors take care of urgent issues such as climate change, reducing carbon footprint, and other hot topics in sustainability. They want to make investments that can deliver a real impact. But why is sustainable investing is so popular now? Is the reason lying only in taking care of the Earth?

Why is Sustainable Investing Important?

Sustainable investing is gathering pace because society is growing more concerned about the overall impact on the environment. If some time ago, sustainable investing had a more “activist” approach, nowadays, the situation is changing. Today, over $26 trillion is invested in environmentally and socially sustainable ways.

Investors understand that the leading group of consumers are Millennials who push brands towards sustainability and seek to know how things are produced. Hence, a sound strategy is to engage in sustainable investing and deal only with organizations that follow sustainability in all processes of manufacturing goods: from drawing a sketch to a marketing stage. Overall, companies that make sustainable investing not only capture significant financial returns but also establish long-term customer relations.

At the same time, good ESG performance reveals a good quality of management. Companies that manage to account for ESG risks and opportunities are more likely to manage the market challenges and are better positioned to outperform competitors. Thus, investors have good reasons to anticipate the ultimate success of socially responsible companies.

Sustainability education can provide you with the knowledge necessary to make your SME an appealing choice for investors. Also, it will explain how to make smart investment choices and how to explain the rationale of the choice for clients and employees.

How to Attract Sustainable Investments

Although sustainable investment is ethical and has a strong business sense, there are important challenges to it too. One of them is the lack of unity in sustainability reporting. Sustainability reporting should be regulated at the same level across the globe. But the world is still far from unified mandatory reporting; organizations apply different frameworks, so investors can’t compare companies and identify the one which follows the sustainability principles better. Also, many investors have difficulty finding a balance between ROI and social impact. They can’t calculate the extra-financial value created as a result of the activity, hence translate outcomes to financial values. Collecting data, in this case, is quite challenging.

To attract investors that consider ESG factors when making investment decisions, SMEs should proactively address these challenges by taking the following steps:

• Develop the business case for sustainability. Show the stakeholders that your company incorporates the main sustainability principles in all business processes, like using alternative light resources, caring about water consumption, providing employees with a sustainable workplace, etc.
• Identify what to disclose and where to disclose it. Choose what is material and consistently disclose your sustainability performance indicators using one of the most popular reporting frameworks. Note that the SustainOnline sustainability reporting platform allows presenting data you routinely collect using a framework that an investor prefers.
• Promote your annual integrated reports. There is a lot of information that is related to different interest groups, and publishing one report that presents it will help investors get a full picture of the company. Promote the published report in places where potential investors will see it.

The Last Word

Sustainable investing brings investment capital to firms that are eager to resist climate change, worsening of environmental state, while encouraging corporate responsibility. To attract investors and make your own investment decisions promote sustainability, follow sustainability principles, use sustainability reporting platforms to show the progress, and be ready to change to cater to a new generation of investors.