5 key sustainability terms every investor should know

SUSTAINABLE investing that considers environmental, social and governance (ESG) factors has been gaining traction for years now.

Its focus is on companies that aim to improve wellbeing and have a positive impact on society and the physical environment.

One barrier that may hold investors back from understanding sustainable investing is its jargon. That’s because there are many different approaches investors can take.

Here are five top sustainability terms that investors have been searching for online in the last year.¹
 

1. Socially responsible investing

This term is also known as responsible investing. It’s an alternative term for a range of investment approaches including responsible, sustainable, or ethical investing.

It usually means that ESG factors and values have been integrated into the investment process. Examples of this include human rights and environmental sustainability.
 

2. Impact investing

Impact investors aim to generate positive, measurable influences on society and/or the environment, alongside a financial return.

Some of the areas impact investing might aim to challenge include traditional power generation like non renewables and gender inequality.

Impact investing can be associated with lower financial returns, though this is not always the case. There is some evidence that scoring highly on ESG factors can be associated with better investment returns.
 

3. Environmental, social, and corporate governance

ESG is an acronym for the three central factors used by responsible investors to screen and select companies and other investments for their portfolios.

You’ll find that the terms ‘environmental’ and ‘social’ may sometimes be replaced by ‘ethical’ and ‘sustainable’.

Using ESG factors does not automatically mean a fund or investment portfolio is ‘sustainable’ or ‘ethical’, so you should always do your research first.

Examples of what ESG factors cover vary but they can include climate change, health and safety in the working environment and protecting the interests of shareholders.
 

4. Sustainable energy

Three-quarters of global greenhouse gas emissions come from our current fossil-fuel based energy sector, therefore a transition towards sustainable energy sources is essential.²

Some people may also refer to sustainable energy as renewable energy. Examples of sustainable energy can include wind, solar and hydro power.

You can read more about sustainable energy here.
 

5. Greenwashing

Greenwashing means giving a false impression that a company’s products and services provide greater environmental (or green) benefits than they really do.

It can also refer to the exaggeration of an investment fund’s sustainability criteria.

Governments are becoming increasingly tougher on greenwashing. Last week (7 June), the UK’s Advertising Standards Authority banned a group of big oil and gas company advertisements for misleading the public on the climate and environmental benefits.³

Of course, the list doesn’t just end there. There’s a list of sustainable and ESG investing terminology that you can check out on our website.

It includes a list of the common terms to get to grip with as well as more technical terms.

If you feel confident with the jargon, check out our Sustainable Investment Finder which includes 471 funds.

You can check out the fund’s factsheet to find more about their investment objective, its ongoing charges, management style and Morningstar rating.
 

Sources:

¹ - Google Trends, top related topics from 13 June 2022 to 13 June 2023.
² - United Nations Development Programme, 13 June 2023
³ - Financial Times, 7 June 2023

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. An Investment Manager's focus on securities of companies which maintain strong environmental, social and governance (ESG) credentials may result in a return that at times compares unfavourably to similar products without such focus. No representation nor warranty is made with respects to the fairness, accuracy or completeness of such credentials. The status of a security's ESG credentials can change over time. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.