What is sustainable or responsible investment?

Sustainable or responsible investment aims to integrate environmental, social and governance (ESG) criteria into investment decisions in order to better manage risks and generate sustainable performance over the long term.

The traditional approach to sustainable investment aims to exclude companies that engage in controversial activities, such as those that are harmful to health or the environment, or those that may pose an image risk. Sectors such as tobacco, non-conventional weapons, adult entertainment, alcohol, gambling, etc. are therefore excluded.

The so-called "integration" approach is based on the systematic use of ESG criteria in the investment process in order to improve the risk/return profile of investments. The sources of analysis differ: some management companies use external providers of ESG data, others have developed their own internal research and rating. ESG analysis applied to a stock aims to identify a potential upside that is not necessarily reflected in the stock price, while bond analysis aims to identify a downside risk that is not reflected in the credit rating.

Finally, the so-called "social impact investment" approach involves a targeted effort to ensure that the investment has a positive impact on society. The objective is to generate both a financial return and a positive and measurable social and/or environmental impact.

Sustainable finance has thus evolved from an essentially ethical management approach with a focus on exclusion, to the generalized integration of ESG indicators and now to impact-generating investments in order to meet social challenges and/or mitigate environmental degradation.