Over the recent years, wealth and asset managers have seen a signifcant inﬂux of client funds ﬂow into sustainable investments. Across the globe, demand for sustainable investments has been driven strongly by an ever-increasing amount of people who prefer to invest in alignment with personal values.
There are a myriad of reasons to pursue ESG investng. The following is a non-exhaustve list of reasons behind why this innovatve method of investng is gaining popularity across the globe:
This is a critcally important dimension, when one looks at what companies can and arguably need to do towards the beterment of society. Take climate change for example, where corporatons are in the positon to innovate, such as creatng and championing driverless electric transportaton / other related aspects of green infrastructure, or commitng on the price of carbon that transcends borders.
In short, public companies have a key role to play, and need to be encouraged to do so by investors who both choose to fund them, and make clear what they expect.
At minimum, companies need to understand that there is a fnancial penalty for getng environmental and social issues wrong and it helps as well if there is a reward for making smarter choices
The global momentum around responsible investment has partly been driven by concerns about the detrimental impact of short-termism and harmful corporate behaviours on company performance, investment returns and market behaviour. Short-termism and harmful corporate behaviours lead to negatve consequences, harming growth and share price. These can include sector emissions constraints, community oppositon to projects, increased insurance premiums, decreased access to capital markets, damage to reputaton, and litigaton threats.
On the other hand, ethical corporatons are commited to end unsustainable behaviours and tackle future challenges including environmental and social issues, thereby creatng a good reputaton which hands a number of advantages to a business. It is atractve to customers, draws in the best staﬀ, and enhances trust with similarly ethical trading partners.
ESG investng does not equate to foregoing returns. In 2015, Index frm MSCI has found that share portolios with more exposure to socially responsible companies, based on its own environmental, social and governance criteria, performed beter than the benchmark overall over an eight-year period.
According to Prof. Ioannis Ioannou, an assistant professor from London Business School, sustainable companies tend to have a more dedicated investor base who trade less ofen, compared to less sustainable companies that atract more transient investors who trade more ofen. This implies that ESG investments have lower risk of excessive price volatlity than their non-ESG peers – Good news for investors seeking stability in their investments.
People who choose to follow an ethical investng strategy let their feelings, about how workers should be treated, how the natural environment should be cared for, how corporatons should treat their shareholders and so on drive their investment decisions. One of the benefts of this style of investng, is the potental for good feelings when a company, whose actons you support, performs well fnancially, bringing good returns to your portolio, and benefts to all of its stakeholders.