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The sustainability factor

29th January, 2020

The current move toward sustainable investing has a number of drivers. Global Government Policy has an increasing focus on issues such as climate change, with targets and regulations being drawn up.

The challenges posed by climate change and the resultant policy response has compelled investment managers to assess how asset classes and individual companies will be impacted, both positively and negatively. As a result, consideration of ESG factors in the investment decision making process is increasing and will continue to do so. In addition, there is growing client demand to invest in a manner consistent with their values.

However, like any investment, this style comes with its risks, and some would argue that despite this rapid growth and interest, a weakness in the ESG investment landscape is the lack of standardised terminology.

 

Environmental 

  • Cimate change

  • Population growth 

  • Bio-diversity

  • Food security

  • Resource depletion

  • Deforestation

 

Social

  • Human rights

  • Labour conditions

  • Child labour

  • Equality

  • Supply chain stanards

  • Health and saftely

Governance

  • Diversirty of board directors

  • Corruption

  • Executive compensation

  • Shareholder rights

  • Risk management

  • Lobbying

 

ESG|Myth versus Reality

Given the array of terms associated with ESG investing and the lack of a common language, investors can find it difficult to attain an understanding of what it means to invest in this manner. As a result, some myths and misunderstandings still pervade.

We want to dispel some of the common myths and provide clients with context around the current state of play.

Myth: If I invest this way, I will sacrifice on return.
Reality: Both academic and industry research has demonstrated that investing in a sustainable manner has not harmed investors. Investors have experienced similar returns and often with lower volatility, leading to improved risk adjusted returns.
 
Myth: It’s a fad – don’t believe the hype.
Reality: In fact, this type of investing has been in existence since c.1758, with the Quakers forbidding members from participating in the slave trade
 
Myth: Sustainable investing is solely an exclusionary exercise that screens out “sin stocks”
Reality: An array of different approaches exist and there is an increasing amount of investors integrating ESG analysis into their investment decisions
 
Myth: It’s a niche style of investing – not for all.
Reality: This doesn't have to be the case, there is huge interest worldwide with  $30.7 trillion in total assets under management in five of the major global markets
 

 

 

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This article is from our Outlook 2020 edition of MarketWatch.

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This article is from our Outlook 2020 edition of MarketWatch.

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