Key Concepts in Sustainable Investment

This chapter explores the fundamental concepts and definitions that underpin sustainable investment. It explains why investors are interested in sustainability factors, including potential financial performance improvements, positive impact generation, client expectations and regulatory requirements. It also describes the major responsible investment strategies – screening, environmental, social and governance (ESG) integration, thematic investing, stewardship and impact investing – and discusses the implications of these for financial returns and for sustainability-related impacts. The chapter then delves into three critical concepts that shape sustainable investment implementation: financial materiality, which determines which factors are considered relevant to investment decisions; timeframes, which influence how short-term and long-term considerations are balanced; and diversification, which affects how investors manage risk across portfolios.