Business plays an essential role in tackling social and environmental problems. The typical approach emphasizes the need for companies to create social and environmental value while also generating profits–commonly referred to as the triple-bottom line.1
In this paradigm, investors take on responsibility to positively influence the wellbeing of society and health of the planet by selectively allocating their capital. The umbrella term of sustainable finance captures how investors engage with companies over their environmental, social and governance (ESG) issues. But how do investors decide whether to invest, divest, or engage with firms on sustainability issues? What challenges do investors face in promoting corporate change toward more sustainable business models?
