SUSTAINABLE INVESTING

Sustainable Investing is an investment strategy which integrates environmental, social, and governance (ESG) factors into investment analysis and decisions.

It recognises that ESG can have an impact on the financial value of an investment and also that investments have an impact on the world around us.

Capital Markets and Climate

Climate change is arguably the greatest challenge humankind has faced. Its consequences are visible everywhere. There has been a dramatic rise in climate disasters over the past two decades. We can no longer ignore the reality that our climate is changing and that biodiversity is collapsing.

Capital markets are a critical force to drive the transition to a net zero world, with concerted action from all participants, ranging from a reallocation of capital by asset owners, to effective channeling of funds by asset managers and banks to greener investments and innovation.

Companies and investors have a fundamental responsibility to reduce their impact on the planet and join the journey to a net zero, clean energy economy.

Calculating the value of businesses and assets and the impact of climate change on business valuations is in its infancy. Yet it is one of the most important factors determining where investors put their money and help accelerate the transition to a net zero, sustainable economy. 86% of investors now say that climate change will be at the centre of their investment policy within 2 years, versus 73% now, and 33% just two years ago (Source: Robeco).

Some key considerations when evaluating sustainable investments include:

• how to integrate sustainability into the overall investment decision making process

• how integrating sustainability into stock selection can enhance returns

• how can we measure the impact of companies on societies and the environment?

• which metrics can indicate whether companies will successfully increase their impact in the future?

• how to scale ESG in order to be a force that helps drive the transformation towards more sustainable and resilient societies

Terminology & ESG

While the growing acceptance of these strategies has been impressive, confusion still persists about what exactly constitutes ESG or sustainable or responsible investing, how it informs investment decisions and its potential impact on returns.

A UBS report found that 79% of individuals are confused over terminology. The same report found that 82% of investors believe the returns of sustainable investments will match or surpass those of traditional investments. The rationale is simple; they view sustainable companies as responsible, well-managed and forward-thinking, making them good investment prospects.

EU Sustainable Finance Disclosure Regulation (SFDR)

The EU’s Sustainable Finance Disclosure Regulation (SFDR) came into effect on March 10 and was widely welcomed by the funds industry. The SFDR calls on fund managers to classify their funds according to three categories – article 6 which makes no claims of sustainability, or article 8 and 9 which both claim ESG credentials and require firms to provide data to support the claims.