Sustainable investing has been steadily gaining traction worldwide. A recent Morgan Stanley report highlights this trend, revealing that 77% of individual investors are interested in investing in companies or funds that aim to deliver market-rate financial returns while also generating positive social or environmental impact. Additionally, over half (57%) of these investors reported increased interest in sustainable investments over the past two years, and 54% plan to increase their allocations in the coming year.
Despite this growth, the report underscores concerns about greenwashing, with many investors citing a lack of transparency and trust in ESG data as potential barriers to sustainable investments. As more individuals consider directing their capital toward companies with strong sustainability practices, it’s essential to understand not just why sustainable investing is growing, but also how these investments can create tangible environmental impact. This month, we’ll dive into the key mechanisms and strategies that make sustainable investing truly effective.
Signaling Support through Portfolio Screening
Investors can create impact by strategically selecting the companies in their portfolios. Whether aiming to maximize risk-adjusted returns or align investments with personal values, the core idea behind this approach is to shift capital away from unsustainable companies and direct it toward those with strong sustainability practices. By doing so, investors signal their preference for businesses that demonstrate responsible governance and environmental stewardship, and help support those businesses and their positive impacts directly.
Engaging Shareholders to Drive Sustainability
Shareholders hold significant influence over companies, especially when they form coalitions or build strong relationships with corporate leadership. Research shows that shareholder engagement is more effective when shareholders collaborate, as it enables them to pool their power, legitimacy, and urgency. Direct actions, such as meetings, shareholder proposals, and voting, allow investors to advocate for companies to adopt more sustainable practices, making this an essential avenue through which sustainable investing can drive environmental change.

Prioritizing Metrics and Transparent Reporting
Peter Drucker’s well-known quote, “You can’t manage what you can’t measure,” is particularly relevant for sustainable investing. Monitoring companies’ progress in decarbonization and other sustainability goals is crucial for insulating portfolios against risks, such as regulatory changes and shifting consumer preferences. Investors should seek companies that prioritize transparent reporting and adherence to best practices in sustainability disclosures. Asking the right questions and focusing on measurable outcomes helps ensure that investments align with genuine sustainability goals.
Advocating for Stronger Regulatory Frameworks
Policy and regulation play a critical role in pushing companies toward sustainable practices. Investors can influence this process by providing insights to policymakers and advocating for regulations that promote corporate sustainability. For example, the U.S. Securities and Exchange Commission (SEC) recently introduced a rule requiring companies to disclose climate-related information in key filings. The SEC requirements will be phased in over several years and will replace inconsistent, voluntary reporting of climate risk exposure with clear and consistent standards. This shift from voluntary to mandatory reporting on governance, risk management, greenhouse gas emissions, and transition plans will help curb greenwashing and give investors more leverage to drive meaningful change.

How to Get Started
Navigating the complexities of ESG reports and distinguishing between genuine sustainable investments and greenwashing can be challenging. Partnering with a firm that specializes in sustainable, values-based investing can simplify the process and help avoid the confusion of corporate jargon.
At Egéa SRI, socially responsible investing is our core focus. We help individuals align their financial decisions with their values, offering customized funds that reflect specific goals—such as biodiversity-focused investments. Our team of chartered sustainable, responsible, and impact investing (SRI) counselors is dedicated to upholding the highest standards in SRI and ESG principles. Contact us today to learn how we can support your sustainable investment journey!