Socially responsible investment for a more sustainable world

24 January, 2023

Meeting the needs of today’s societies without compromising the well-being of future generations is one of the great challenges facing humanity. There are many ways to pursue this goal, and many of them, the ones with the greatest impact in themselves, require investment.

This is where socially responsible investment comes into play, which not only takes into account financial aspects.

What is socially responsible investment?

Also known as sustainable investment, it is an investment approach that takes into account financial aspects and economic returns without overlooking issues such as environmental and social impact, as well as ethics.

Investors focused on this model are looking to invest in companies and projects that have sustainable and responsible practices.

This type of investment can trace its origins back to the Vietnam War, when student revolts against the conflict began to pressure their own universities to take sides, trying to stop them from investing in or collaborating with companies that made weapons.

From there, the popularity of this conception of finance with an ethical and sustainable background grew, causing some companies to start looking for an overall benefit, not only economic, for all parties involved in their business or value chain.

At the end of the 20th century, ESG criteria began to be used to identify the parameters used to consider an investment as socially responsible. It was in the 1970s that the first sustainable investment funds emerged, and they are now widely recognised given the growing importance of issues such as climate change or diversity, among others.

Sustainable investment takes into account financial aspects without neglecting issues such as environmental and social impact

ESG criteria for identifying socially responsible investments

The use of ESG criteria for socially responsible investments has grown in recent years. The term “ESG” refers to the three letters for the concepts:

  • Environmental, referring to the environmental factor (protection of diversity, responsible waste management, reduction of emissions, etc.).
  • Social, in relation to the social factor (positive impact on the local community, patronage, internal diversity policies, respect for human rights, etc.).
  • Governance, or governance factor (transparency, responsible management, protection against discrimination, benefits for shareholders, etc.).

Accordingly, a company that wants to consider itself as socially responsible or that wants to make this type of investment must take into account the search for sustainable development by identifying the following aspects, which are being regulated in the European Taxonomy of Sustainable Finance:

1. Economic – financial and profitability data

2. Good corporate governance practices

3. Positive impact on people, communities and social environment

4. Respect and protection of the environment

In the energy sector

The energy sector is an example of the growing importance of sustainable investment. It is a sector with huge responsibility for environmental protection, but also for satisfying society’s basic needs. Moreover, its weight in the global economy is very significant.

These conditions make energy production and distribution companies relevant players in socially responsible investments for a number of reasons:

  • They are recipients of investments to develop clean energy projects, transform their business models, reduce dependence on fossil fuels, etc.
  • They implement projects related to renewable energy, energy efficiency or measures to reduce air and water pollution.
  • They are companies in the process of transformation and subject to environmental regulations and policies for a more sustainable future.

Socially responsible investment will help reduce greenhouse gas emissions and mitigate climate change

Socially responsible investment is set to become very relevant in the coming years, particularly in the world of energy. It will help reduce greenhouse gas emissions and mitigate climate change, but will also allow for greater diversification of the energy matrix, reducing dependence on fossil fuels. All this will consequently have an impact on improving people’s quality of life.