Become an expert in sustainable investing in 5 minutes
Sustainable investing is a complex topic and we want to help you understand it better. Dive into our ‘Matter Wiki’ and get to know more about the terms in sustainable investing such as ESG, Carbon Bubble or Impact Investing, so that you are ready to get involved in those conversations and use the jargon like a connoisseur.
So far you can read about:
- Carbon Bubble
- Impact Investing
The focus in finance is starting to shift towards responsible investments and when reading about this topic, you are highly likely to fall over the abbreviation ESG used in different contexts. What does it really mean?
ESG is short for Environmental, Social and Governance and is an expression for new factors of investment criteria. Thus, ESG challenges the traditional criteria for investments that have sole focus on returns and risk management. It’s becoming more and more normal to evaluate a company’s efforts and impact for people and the planet and moreover align with their principles of corporate governance. That’s what ESG is here to help us with.
Specifically, investors use ESG data to exclude certain investments, if the company has too big of a negative impact on the society or environment for you to wish to support them financially.
Furthermore, ESG the data is used to find companies with a positive contribution to an equal society and greener planet, either through their specific product or their conduct internally and externally.
In Matter, we use ESG-data from more than 40 different sources to create a more holistic picture of our customers’ investments.
The best news yet? Research shows that responsible investments using ESG data has made similar or better financial returns the past 15 years.
Not surprisingly, the interest in ESG-investments is currently at an all-time-high. Want to know more? Then take a look around Morgan Stanley’s latest visual report about sustainble investments.
Carbon Bubble explained
The many billions invested worldwide in fossil fuels - oil, coal, gas - can loose value when we move into a direction of a carbon-neutral economy. If the carbon bubble bursts, the investments in the fossil industries will loose value as the capital is bound in a product that cannot be used to generate profit.
Researchers and investors have for many years been warning about the carbon bubble and the risk that a burst of that bubble can cause a new financial crisis.
Impact Investments explained
Impact Investment is an expression increasingly used for a wide range of responsible or impactful investments. However, impact investment has a specific meaning and definition.
Global Impact Investing Network defines impact investing as ‘Investments in companies, organisations and funds with the intention to generate a social and environmental impact alongside financial returns.’ The strategic goals for what market to operate in and the and expected returns varies from investor to investor.
Another principle for hardcore impact investors is additionality: The investment cannot replace current efforts or projects, but must finance something additional and impactful that would not have been realised had the capital not been deployed.
Examples of impact investments can be health care or microfinance in underserved markets, social housing or educational technology. Furthermore, green and blue bonds are loans in projects making an impact for the environment or oceans respectively, and can also be considered impact investments.
Read more about impact investing here.
Divesting means ‘rid oneself of’, and is an expression that comes from finance meaning getting rid of one or more investments. In Matter we use the expression when speaking about the difference everyone can make if selling their investments in damaging companies and instead invest the money on stocks or bonds of companies making a positive contribution for people and the planet.