Sustainable investments and the impact of ESG factors

Abstract

Given the growing importance the topic of sustainability has nowadays in the collective life, the purpose of this paper is to analyse and clarify its origins and the influence that it has in the context of investments. To this work, the concept of sustainability and sustainable investments will therefore be initially defined, giving a clear definition and an overview of its historical development, to gain in this way a better understanding of the reasons behind its progress. Sustainability it is not a standalone concept and in this work, we consider it together with the so-called ESG factors. These factors flow directly from the concept of sustainability and refer respectively to its environmental, social and governance aspects. Starting from the definition given by the Secretary General of the United Nations Kofi Annan, an important part of the paper will be prepared with the aim of listing and describing the most famous ESG rating agencies, as well as to describe the process and the drivers that lead to the final rating. The paper's goal is to provide a comprehensive understanding of how ESG factors influence the investment world, as well as the strategies that result in their inclusion or exclusion in an investment portfolio, and the risks or opportunities that result from these choices. To corroborate the bond between ESG and the investment choices, in this paper we will show how the compliance with them by portfolios, stocks, or indices can lead to a lowering of the level of risk in the long run. For this purpose, literary references as well as specific data on investments' returns will therefore be included.