By Dr Samuel Barbosa Da Cunha, the CEO & Chairman at Bar Trading Japan on the truth behind sustainable investing.
He separates sustainable investing myths from facts including the idea that investors sacrifice returns if they invest sustainability.
Sustainable investing and impact investing are used a lot in the media right now. They have become buzzwords as the corporate and investment sectors battle for recognition of their efforts to become sustainable. But this also means that there is a fair amount of fake news out there about these terms.
There is a long-standing assumption and groundless fear that in order to invest sustainably, investors must be prepared for losses. This idea that financial performance must be sacrificed in order to invest in sustainable ways is no longer true – if it ever was.
What kind of myths about sustainable investing are out there?
Instead, there is a growing body of evidence to prove that companies with exemplary environmental, social and governance (ESG) records tend to outperform peers. Furthermore, firms and investors following a sustainable strategy are usually better protected against the risks of poor decisions being exposed to scrutiny. This improves their reputation and boosts their bottom line in a virtuous circle.
The idea of sacrificing profit sustainability is probably one of the most commonly shared misconceptions about impact investment and sustainable investment. Below are similar myths that I have heard or read regarding sustainable investment, and why they’re not true.
Busting 9 myths about sustainable investing that are just not true
MYTH 1: Investors make no returns on sustainable investment decisions
REALITY: Experts say that returns are comparable – and sometimes superior – to traditional investment returns. This is borne out by the fact that the MSCI KLD 400 Social Index, which is a sustainable US equity index, performs in a similar way to the S&P 500 Index. There is no reason to believe that sustainable investments automatically deliver poor returns.
MYTH 2: Measuring the impact of a sustainable investment isn’t possible
REALITY: Monitoring an investment’s sustainable impact is becoming more mainstream all the time. It’s now an expected prerequisite that companies or services are able to prove the sustainability of the project to the investor. Companies and funds accept that reporting their impact on the social and environment is now expected. The most specifically intentional form of sustainable investing is impact investing, and this demands measurement and provable results.
MYTH 3: Sustainable investment is just a trend that will die down
REALITY: In 2019 in the US, $17 trillion worth of assets were sustainably managed. This was a 42% increase on 2018. And since then, impact investment has become more widely accepted and expected. The pandemic has brought home to the world just how vulnerable the global economy is, and just how much work there is to do to ensure a sustainable future for the next generation. Sustainable and impact investing are very much here to stay.
MYTH 4: Investors have to exclude certain companies from their portfolio
REALITY: While it’s true that some investors do follow a strategy of exclusionary screening, there are many more positive approaches to take too. Exclusionary screening is where an investor will automatically discount companies that can’t prove their values align. However, ESG integration and strategic impact investing are also viable strategies and are much more positive and intentional.
MYTH 5: Sustainable investing is only concerned with equities
REALITY: This is not the case at all. Green bonds, corporate bonds, sustainable municipal bonds and development bank bonds are also available as sustainable fixed income investments.
MYTH 6: Sustainable investing only focuses on environmental protections
REALITY: In 2021, sustainable investing covers the whole range of ESG factors. So, as well as the environment and combating climate change, ESG considerations include the right to privacy, data security, business ethics, management of labour and health and safety. These are wider factors that take into account the huge systemic changes that are needed particularly in the developing world to create an equal, fair world for everyone.
MYTH 7: Investors must be experts in sustainable investing to do it properly
REALITY: There are endless products available that include strategic focus on sustainable investing strategies. From exchange traded funds to mutual funds and separately managed accounts, there are loads of different products to direct sustainable investing. One survey shows that more than 70% of all investors are interested in sustainable investing.
MYTH 8: There’s no liquidity in sustainable investments
REALITY: Not true. It’s possible for investors to find sustainable investing solutions in private equity and private debt, as well as in fixed income and public equities.
MYTH 9: The best and wealthiest investors don’t follow the sustainable investment strategy
REALITY: Quite the opposite is true. For example, in the United States, the richest wealth segment follows sustainable investment strategies more than any other subsector. Around 73% of global family offices already invest sustainable, with 39% pledging to increase this until the majority of their assets are sustainable by 2025.
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