There are still challenges to overcome to embed sustainable investing as the ‘new norm’. Disclosure and data remain thorny issues (concern that data is still fragmented and disclosure inconsistent) and the lack of standardisation holds investors back. We still have some way to go on the regulatory front too – while the European Union has been a front runner with its sustainable finance agenda, there are delays and ongoing debates. But we also have many reasons for optimism. Perhaps one of the most exciting trends is how retail investors are waking up to the sustainable investing trend. Interestingly, research tells us that a lot of this drive is coming from women, as well as younger generations. New audiences and new conversations are to be had – and this is the intention of my new book, Financial Feminism: A Woman’s Guide to Investing for a Sustainable Future . For me, 2022 presents the opportunity to take sustainable investing to many more people so that the penny can drop for others too.
more concrete evidence that sustainable funds outperform the wider market. As this evidence has grown, so too has momentum, with more investors claiming that sustainable investing is the future, and fund companies launching sustainable funds at record pace. A pivotal moment occurred in early 2020, when investment heavyweight Larry Fink, CEO of Blackrock, famously stated that his company would put sustainability at the centre of its investment strategy. Most big investors now believe that sustainable investing is good risk management, leveraging the practice to help manage risk in uncertain times. The challenges of 2020 and 2021 have been somewhat of a game changer in this regard. As the Covid-19 pandemic swept the world, many sustainable investors held their breath, collectively fearful of what it would mean for its impressive trajectory. But the worst did not happen – in fact, it turns out that companies that manage sustainable risks better, manage other risks better as well. The downturn associated with the pandemic has thrown water in the face of naysayers claiming that sustainable investing would result in lower returns. This is simply not true.
corporate behaviour. But sustainable investing is also about being a smart investor, in particular investing in what we want our future to look like. Take, for example, the global policy agenda which is shaping the way many investors are thinking. The Paris Agreement on climate change gave us a global carbon budget, and we are seeing widespread climate commitments being made by corporates and investors alike. Over the past year, we have seen more and more countries and corporates make net-zero commitments, and this will undeniably shape what our future landscape. The Sustainable Development Goals are the closest thing we have to a global strategy, essentially setting out what we want the world to look like in 2030. From the investor’s perspective, it makes absolute sense to invest in the companies and industries aligned with this vision of our world. However, despite the logic behind investing sustainably and responsibly, we have often been distracted by the controversial debate on whether being a sustainable investor results in lower financial returns. Many people still ask ‘doesn’t doing good result in making less?’ Critics argue that limiting your investment portfolio by excluding certain companies that don’t display ‘good conduct and an adherence to certain values’ might omit some reliable performers (from the fossil fuel industry, to tobacco firms). They warn that you will give up some financial performance if you put your money into a sustainable or impact investment product. The other side counters that a portfolio of companies scoring high on sustainability metrics is much more likely to do well in the long run because these organisations are better at managing risk. We do now know that non- financial factors provide important signals about future financial performance. If you are thinking through the different environmental and social issues that could impact on a company, these are likely to provide early warning signals that would not necessarily be reflected in its stock prices or financial statements. Historically, one of the challenges we faced was the lack of data to demonstrate and support the argument that investing sustainably does not result in lower financial returns. The good news is that this has changed. Now, we have
What will happen next? Thankfully it seems that the pandemic has strengthened investors’ commitment, with demand for sustainable and green products continuing to grow. As we look ahead, certain themes within the sustainable investing universe will gain more attention. Climate change will remain a priority for many investors. The COP26
‘We do now know that non-financial factors provide important signals about future financial performance’
summit at the end of last year has driven new and improved climate commitments, with companies and investors following suit. Diversity has been receiving attention
for a few years, but the Black Lives Matter movement has brought into sharper focus the lack of meaningful progress. And, of course, the pandemic also shone a spotlight on social issues, pushing many investors to reconsider management of social risks within their portfolios.
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