What is sustainable investing?

What is sustainable investing?

Sustainable investing represents a more holistic approach to investing that takes into account our impact on the natural world and society, as well as any potential financial gains for the investor.

Investors often refer to sustainable investing interchangeably with other concepts such as ESG investing (see below), socially responsible investing, green investing, and impact investing. All of these terms describe the idea that finance should support the broad long-term objectives of society and the needs of our planet rather than simply trying to make profits.

Sustainable investing, done for example through an ESG framework, can offer both a statement of ambition for the world as it should be and provides objective and rigorous criteria for identifying investments that can help our journey towards these goals.

'$3.9 trillion in fund assets globally’

In 2025, approximately $3.9 trillion in fund assets globally were invested in sustainable assets, according to data from Morningstar Sustainalytics. 

What does ESG stand for?

ESG stands for “Environmental, Social and Governance”, a common formulation for sustainable investing. These three areas sum up the key ways in which we can act to protect the natural world, ensure social progress, and improve global governance standards. Each area covers a wide range of ESG factors on which the non-financial performance of a company or an investment project can be measured. 

1. Environmental factors refer to the impact that a company has on the natural environment. This includes issues such as pollution (carbon emissions, toxic chemicals and metals, packaging and other waste), the use of natural resources (water, land, trees) and the consequences for biodiversity (the variety of life on Earth), as well as attempts to minimise our environmental footprint (energy efficiency, sustainable farming, green buildings).
2. Social factors cover how a company interacts with its employees, suppliers and the societies where it operates. Measures can include labour and welfare standards for those directly employed or part of the organisation’s wider supply chain, as well as product safety for consumers or privacy and data security for its users. Inequality, discrimination and exclusion are underlying issues.
3. Governance factors relate to whether a company manages its business in a responsible way, including anti-corruption policies and tax transparency, as well as traditional corporate governance concerns such as managing conflicts of interest, board diversity and independence, the quality of financial disclosures and whether minority shareholders are treated fairly by controlling shareholders.

A brief history of sustainable and responsible investing

The ideas that underpin ESG investing go back a long way. Leading thinkers and economists have warned of the dangers of environmental damage or the social ills caused by certain products or business practices for many centuries, including the theologian John Wesley (The Use of Money, 1744) and the economist Adam Smith (The Wealth of Nations, 1776).

The first investment vehicle that explicitly identified itself as a “responsible” investor was the US Pioneer Fund, which launched in 1928. This avoided investing in sectors such as alcohol and tobacco. Public discussion about the damage that unchecked economic growth was causing through pollution and environmental degradation began to grow substantially in the 1960s, 1970s and 1980s.

In particular, the foundation of the interdisciplinary Club of Rome network in 1968 and its inaugural report (The Limits to Growth, 1972) attracted considerable public attention. This was a key step in changing the paradigm of how our economic activities interact with the natural world.

By the 1990s, the idea that companies, organisations and investors should be taking account of environmental and social costs became more widely recognised, with the arrival of the first “socially responsible” stock index, the Domini 400 Social index, and the “triple bottom line” (also known as TBL and 3BL) or “people, planet, profits” accounting framework, under which organisations began to take account of their social and environmental performance in addition to their financial results. 

ESG: a new abbreviation for a new century

The formal representation of these issues under the ESG definition began in 2004, when the abbreviation was first used in a report by the United Nations (UN) Environment Programme Finance Initiative (Who Cares Wins, 2004).

Just two years later, the UN launched its “Principles for Responsible Investment”, a framework for incorporating ESG issues into investment. This began with 63 signatories overseeing $6.5 trillion in assets and had grown to more than 5,000 signatories by 2025.

Multinational support for ESG objectives took a major step forward in 2015, when the 193 countries of the UN General Assembly adopted the UN Sustainable Development Goals (SDGs). These set out 17 interlinked global goals intended to set the world on a path towards a more sustainable and equal future.

The SDGs cover a wide range of ESG factors, including the environment (such as tackling climate change and reducing waste), social progress (such as education, health and gender equality), and robust governance (such as developing justice and strong institutions).

Recent UN COP meetings have kept up the pressure on ESG issues, notably around climate change and temperature gain targets under the Paris Agreement. However, progress has often been slow and uneven.

Economics, as well as disappointments around fossil-fuel phaseouts, is encouraging a shift in the institutional focus from mitigation to adaptation and resilience strategies. Recent years have seen considerable debate around ESG investment, its desirability and regulation. Different regulatory regimes have led to different regional focuses. Companioes and investors within the EU, for example, often have different priorities to those in the US.

Despite this, some profound regulatory change continues: note, for example, the planned phase-in of the EU’s Carbon Border Adjustment Mechanism (CBAM), which is due to start raising levies in 2026. Most importantly, it also appears that we are still laying the foundations of a more sustainable economy in areas such as clean energy.