The last few years has seen a global shift toward sustainable investing. It started with investors avoiding putting money toward companies that harm the environment, but over time this has evolved into investments that take into account climate change, social issues and responsible corporate citizenship. Environmental, Social and Governance (ESG) investing is thus a new way of approaching investments that takes into account not just financial parameters, but also social ones.
According to a 2016 report by the Global Sustainability Alliance, over 22 Trillion dollars, or 26 per cent of all assets managed in the world now capture an ESG strategy. The report actually even standardises the definition of ESG investing into different categories. From the report, the categories are as follows:
HSBC has done a global study with East and Parnters that analyses the state of sustainable financing and ESG Investing and they found that three of the seven above mentioned styles are used by investors globally; ESG Integration, negative screening and sustainably themed investing.
In fact, the HSBC report had a key insight that ESG decisions are increasingly financially driven, proving that the market is sustainable. Investors cite financial returns as being one of the key factors in their decisions about ESG as shown in the chart below:
There is a view in the minds of investors that choosing to invest in an ESG involves a trade-off in returns. The evidence points to the contrary, and returns from ESG investing are just as good as regular investing. Jeremy Grantham of GMO, captures this in his latest report:
So if you can invest in a way that makes you a more responsible corporate citizen, without any trade off in returns, why wouldn’t you?
Rishad is the founder of Kairos Capital. He started his career with Standard Chartered Wealth Management and has extensive experience in markets, particularly in terms of mutual funds and stocks.