Everything you need to know about sustainable investing

April 10, 2024  |  Scalable Capital
Asset Blog Sustainable investing 1920
How to start investing sustainably? What are the options available? Discover the world of sustainable investment.

Never before has sustainable investing been so popular — this is also the case in Italy. It is high time to delve deeper into this phenomenon.

What is sustainable investing and why is it important?

Sustainable investing is an investment strategy that focuses not only on financial returns, but also on social and ecological impact. So it starts with determining how you can and want to contribute to sustainability, and what your financial goals are. Then look for investment products that match both your sustainable and financial vision.

Please note: A term that is often mentioned in the same breath when it comes to sustainable investing is 'green investing'. However, green investing is not the same as sustainable investing. Both are sustainable, but only through green investing can you benefit from certain tax benefits. Green investing is done through so-called ‘green funds’. In this article we only focus on sustainable investing.

Sustainable investing is important because it goes beyond just making money: it's like investing in a better future for everyone. When you choose sustainable investments, you focus on companies that are committed to environmental conservation and that take their social responsibility. It is a way to combine financial success with positive changes in the world.

What are the characteristics of sustainable investment products?

Sustainable investment products go further than just making a profit, to drive positive change. Consider, for example, companies with a strong focus on environmental friendliness, social responsibility, and good governance. A concrete example of this is investing in a company that focuses on developing sustainable energy sources, such as solar or wind energy. In short, sustainable investments strive to combine financial success with a positive impact on the world.

ESG, SRI & other abbreviations

In sustainable investing you often come across abbreviations such as ESG and SRI. ESG stands for Environment, Social, and Governance. This means that when assessing investments, we look at how a company deals with environmental issues, social responsibility and good governance. Companies are often assigned an ESG rating, which should give the investor an indication of their level of sustainability.

SRI stands for Socially Responsible Investing, i.e. investing with a focus on social responsibility, through investments that contribute to a positive social impact and respect ethical values.

In addition to ESG and SRI, there are also a number of other relevant abbreviations within sustainable investing. For example, a common term is ESGR, where the 'R' stands for 'Risk'. This emphasizes the importance of evaluating risks in the areas of environment, social policy, good governance, and finance. Another term is SDG, which stands for Sustainable Development Goals. This refers to the 17 goals set by the United Nations to promote global sustainable development. The above classifications can help you find sustainable investment products.

Which sustainable investment products can I choose from?

If you are looking for sustainable investment products, there are several options available on the market. We'll go through them below.

Companies (stocks) with a focus on sustainability and climate

One option is to invest in sustainable stocks, choosing companies that are not only focused on profits, but are also actively pursuing environmentally friendly practices and reducing their own carbon footprint. Companies often receive a certain ESG rating, which you can easily find online or in your broker. For example, a company dedicated to producing solar energy panels or a company committed to reducing their own plastic waste through recycling. Read more about how to invest in the stock market here.

ETFs with a focus on sustainability and climate

A second option is investing in sustainable ETFs (Exchange-Traded Funds), which are investment funds that track a specific index. Sustainable ETFs focus on indexes made up of companies with a known strong ESG performance, so you automatically invest in a diverse portfolio of companies that are classified as 'sustainable'. You can usually immediately see from the name of the ETF whether it is focused on sustainability (e.g. by the abbreviations ESG, SRI).

Other types of sustainable investments in Italy

Would you like to explore your options further? Good news: If you are interested in sustainable investments there are several possibilities besides ETFs and sustainable stocks. They offer varying degrees of risk and return which, as with any other form of investment, you will have to weigh carefully before making your decision.

Have you ever heard of green bonds? These financial instruments are now quite common in our market and work in a very simple way. Basically, they are debt securities of variable duration, like normal bonds, but differ in the purpose of financing. They represent a real form of lending to companies, banks, states, or other public entities engaged in actions that put sustainability at the centre. Thus, while contributing to eco-friendly initiatives you can also receive a fixed return. A classic example are the green BTPs, placed on the market by the MEF to finance state expenditure for the ecological transition in Italy.

If you are interested in diversifying, sustainable funds (other than the sustainable ETFs we mentioned earlier) might be just the thing for you. Also called green funds, they are mutual funds, from which they differ in one basic point: the capital is invested in companies with a high rating in sustainability factors. You can choose from a diverse range of proposals to concretely promote positive renewal in society and for the environment.

Are you thinking of investing more consciously? Discover Scalable Broker and start planning your sustainable investments.

Risk Disclaimer – There are risks associated with investing. The value of your investment may fall or rise. Losses of the capital invested may occur. Past performance, simulations or forecasts are not a reliable indicator of future performance. We do not provide investment, legal and/or tax advice. Should this website contain information on the capital market, financial instruments and/or other topics relevant to investment, this information is intended solely as a general explanation of the investment services provided by companies in our group. Please also read our risk information and terms of use.

Author Scalable Capital
Scalable Capital
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