Investing in a cause while pursuing market returns is becoming increasingly popular. Investors are increasingly including environmental, social, and governance criteria while analyzing investments as they seek to have the biggest impact. The proliferation of Sustainable Investing Firms has also gone a long way in accelerating the need to invest in a cause.
However, it is the confirmation that sustainable investments can outperform traditional investments that appear to be fuelling ESG investing push. This explains why more than one-quarter of assets under management globally are now invested while factoring in ESG factors.
If sustainable investments were not paying off, then the world’s largest investors, such as pension funds and hedge funds, would not be pursuing opportunities around sustainable investing.
Sustainable investing firms reached record highs in 2020 with over $51 billion in new investments. The growth was influenced by the growing acknowledgment that sustainable investments are paying off enhanced returns and poised to generate long-term value. Last year alone, as COVID-19 was causing havoc, sustainable funds outperformed conventional funds and indexes on average.
A study carried out by the Harvard school of business studies has already shown that high sustainability companies always tend to outperform the overall market. The study is consistent with thousands of additional studies that show a direct relation between ESG policies and enhanced returns.
“It is obvious that sustainable investments allow investors fulfill a variety of financial objectives while generating considerable returns and managing risk” stated, , The Altruist League’s Managing Partner.
Sustainable investing opportunities capture financial returns and help clients realize intrinsic returns while impacting society and the environment. The intrinsic returns on offer also go a long way in developing deeper connections between clients and their investing habits, therefore, leading to the creation of long-term customer appetite and returns.
Driving Market Growth
Sustainable investing is one of the catalysts driving market growth worldwide. Triple-digit growth saw assets under management on sustainable investments grow from $1 trillion as of 2012 to $4.3 trillion as of 2020.
The growth can be attributed to, among other things, the growth in the number of sustainable investing firms that are encouraging people to focus on ESG investing. As sustainable investments continue to display a track record of market outperformance, more and more investors are likely to demand their wealth be invested in products that outperform and align with their values.
Sustainable investing is also helping companies mitigate risk. Unsustainable and irresponsible corporate practices often expose firms to risks such as litigation, regulation, or negative press. However, firms that invest in causes that can address some of society’s issues are always on good terms with regulators, therefore avoiding unnecessary risk.
Companies with a good ESG profile tend to enjoy a lower risk profile; this is partly because the companies employ rigorous risk monitoring methods.
Investors are also increasingly shunning companies that don’t take into consideration ESG factors. Such companies are usually at crossroads with regulators. Monsanto is one such company that receives poor ESG ratings due to its unsustainable environmental practices. The company ended up paying a huge price over its products, being the subject of accusations of destroying the environment and making people sick.
Gone are the days when an investor’s sole goal was to aim at high market returns while investing. Sustainable investing firms have made it possible for investors to align their investments with their values. Sustainable investing firms are making it easy for investors to settle on investments that generate optimum returns while also aligning with ESG values.
According to The Altruist League’s President, Milos Maricic, “investors are increasingly using positive screening of ESG risk factors to create best in class investment approach. In return, they have succeeded in generating performance that is in line with their values and often outperform market benchmarks.”
Similarly, investors are increasingly selecting investments based on values and priorities. Investors no longer have to sacrifice returns for value-aligned investment choices. Sustainable investing firms provide the much-needed data and information that makes it easy for investors to select investments that match their values.