Room for Improvement
Contributing Editor: Philip R. Walsh
It is indeed optimistic that studies such as those reported in the following article have identified an increasing interest in sustainable investment among financial experts involved in global investing. However, a closer examination of the data suggests that their remains significant room for improvement in that it remains a minority, albeit a sizable one, of those sampled who believe that sustainable investments lead to higher returns. Ideally, this number should be higher. We cannot forget that the purpose of sustainable investing is not necessarily focused on higher returns but should include sustainable impact as a key metric for choosing to invest in a particular fund or ETF. But, some reasonable financial return is required in order to assure continued investment in sustainable funds. What the study really measures is a “belief” that sustainable investments lead to higher returns and is not indicative of actual returns. This adds emphasis to the importance of responsible governance of fund management to monitor the sustainable impact of their investments in addition to financial performance. Sites such as EcologyFunds.com endeavor to provide investors and investment managers with financial performance data but that is only the first step, further analysis needs to be undertaken to examine what assets make up those funds and the degree to which a sustainable impact is being made.
If we look closer at the infographics provided in the article, it is interesting to note that belief in higher returns is greater outside of Germany and that Europe lags in terms of investment in sustainable funds which seems surprising given their leadership position on sustainability. Is their levels of belief and commitment lower because of the knowledge that goes with being a leader in that space? A question worth considering, but in the meantime, there remains a need for improving investor confidence in sustainable investing and that can only be attained by showing the investor community that a combination of sustainable impact and reasonable financial returns can be attained. And that responsibility lies with fund managers.
An increasing number of investors believe that sustainable investments lead to higher returns, according to a new study from Block-Builders.net that was released on Tuesday.
It found that 44% of knowledgeable or expert investors fall into this category, with those in Asia and America particularly enthusiastic about social and green investments. German and European investors are lagging behind, it added.
“More and more investors are coming round to the idea that sustainability and returns are not mutually exclusive,” said Block-Builders analyst Raphael Lulay. “Despite recent gains for these assets, we may still be at the beginning of a long term investment trend.”
The study also found that 37% of financial experts did not want to include sustainable environmental, social and corporate governance (ESG) investments in their portfolios in 2007, while only 4.1% are equally hesitant in 2020. Further data reflects this growing interest.
According to the Block-Builders.net survey, interest in “sustainable stocks” reached a 12-month high on Google in 2020. The Google trend score, which indicates the relative search volume, reached a maximum trend score of 100 based on this search result.
This nascent trend is also seen on the trading floor.
Sustainable investments in the form of funds and shares have been among the recent leaders on various indices. Over the last 12 months, the Global Clean Energy ETF (ICLN) rose by 68.8%. The MSCI World Socially Responsible ETF (UC44.L) also gained 4.9% in value – all in a period during which the DAX (^GDAXI) has declined by around 6.8%, said the study.
The news comes as the European Central Bank said it plans to review its strategy and adopt more sustainable investment practices. According to ECB policymaker Olli Rehn in an interview on Monday, the bloc needs to take into account growing global challenges, such as climate change and the need for sustainable economic development.