Sustainable investments: aligning wealth with ESG values

By Bank Windhoek’s Chief Treasurer, Claire Hobbs

The Harvard Business School defines Sustainable Investment as investment strategies that consider the environmental, social, and corporate governance (ESG) factors alongside financial considerations, in so doing creating a holistic impact; hence, the concept is also being referred to as socially responsible investment back in the day or today as impact investment.

This concept evolved from the recognition that there are inherent adverse outcomes manifesting from investment decisions that failed to factor in the economy’s critical spheres, including the environment and society. Impact investing’s core objective is to bring forth positive transformation in terms of the environment and society while ensuring returns. This shift has been predominately driven by the change within the market for more significant change; recognising action needs to be taken to ensure we have a future.

This is a change Bank Windhoek has recognised and afforded the Namibian market the avenue to access funding through the Sustainability Loan to specifically invest into initiatives looking to create impact for the environment and society, speaking to examples of deliberately directing funding towards creating effect where it matters and still provide our investors which include our depositors with returns.

The ultimate goal

The goal of Sustainable Investment remains to create a more sustainable and equitable world while seeking financial returns. Globally, the redirection of investments to improve the environment is growing exponentially. In Africa, a report by McKinsey Sustainability published in June 2022 highlights the first assessment of opportunities and risks that show sustainable investment results.

The report highlights that Africa can strengthen its climate resilience by redefining its economic model to leverage natural capital and designing financial systems to redirect critical nature-based investments. This approach will create the much-needed shift towards climate adaptation initiatives with the buffering capacity needed to instil resilience within communities and the ecosystems they depend on.

Sustainable investors are focused on creating a long-lasting impact with their businesses and work to promote environmental and social values. When these investors analyse new ventures, they use a holistic lens, weighing the impact potential the proposed venture will achieve during and post-implementation; this ensures the economics make sense and the environment and society surrounding the venture benefit positively. This approach ensures that ventures supported by the investor always consider the environment and society when making investment decisions.

What are the ESG criteria to consider?

Environmental includes animal welfare, climate change, energy efficiency, pollution and resource depletion. Social considerations take account off employment standards, human rights, community relations and engagement and consumer protection. Governance refers to the set systems that lead and direct a company’s executive compensation, transparency, and anti-corruption policies.

Over time, investors achieve sustained financial performance and contribute to creating an equitable, sustainable economy. From an operational standpoint, we recognise that investor organisations have an inherent impact in the areas they operate. Ideally, we want to ensure their operations do not negatively impact the environment and society.

When individuals and businesses practice sustainable investing, they positively contribute to the environment’s health, which creates a wholesome space for growth and allows for growth in different sectors as they strive to solve the world’s biggest challenges. This is particularly important for Africa due to its inherent vulnerabilities and lack of buffering capacity to brave the impact of climate change, which is diverse regarding extreme and weather events.

Investing in companies and projects demonstrating positive ESG practices contributing to the overall sustainable development of the continent should be encouraged as it is vital in building sustained resilience, ensuring that as a continent, we have sufficient buffering capacity to cope with climatic shocks and, in the same vein, improve livelihoods. The focus now should be aligning investments with personal values, promoting ethical practices, and generating a long-term positive impact on the environment and society. It should encompass integrating a range of strategies that bring forth positive impacts internally and externally to the organisation.

While living in thought-provoking times, identifying ways to care for the environment and ensure it is socially consumable is essential. Aligning wealth with environmental and social values has a significant sustainable impact on improving livelihoods and healing the world in the long run. As a result, sustainable investing is something to consider for investors, companies and wealthy high-end customers.