Sustainable investing has grown in strength and appeal, particularly during the pandemic, with many leading think tanks and asset managers suggesting it may finally have “reached its tipping point” – there are, however, some misconceptions surrounding sustainable investing which need busting.
According to Jason Liddle, head of distribution at Sanlam Investments, sustainable investing requires that environmental, social and governance considerations be included overtly in the investment decision-making process, but there are still some myths and misperceptions that linger.
Jason highlights the following:
Myth 1. Sustainable investing compromises investment performance
Investment returns and sustainable approaches to investing are still viewed as mutually exclusive by some investors. However, economic evidence shows that investing in impact and sustainability-driven solutions not only reduces risk but enhances performance. An analysis of hundreds of academic studies and other reports shows that sustainability practices positively influenced investment performance in 80% of the studies. It enables investors to evaluate possible future risks, create more efficient supply chains and better conserve resources.
Myth 2. It is not just about going green
There is still a lingering legacy that sustainable investing is predominantly about green issues. “It is about far more than that. It is about choosing investments that deliver sustainable outcomes for people and the planet over the long term.”
Myth 3. It is not exclusive to millennials
Sustainable investing is as relevant to a baby boomer as a Gen X, especially in a world where more of us will reach 100 years of age than at any time in history – and where leaving a legacy for our children and their children remains a core part of our collective humanity. It is critical to the collective futures that we invest in funds that build clinics, hospitals and other social infrastructure.
Myth 4. It is not about negative screening
There is a misconception that lucrative ‘sin’ stocks that make their money from gambling, fossil fuels, tobacco or weapons are forbidden under the sustainable investing methodology. “Ultimately, it is important to be client-driven toward their sustainability objectives and favoured approaches first and foremost before implementing blanket exclusions. Complementary approaches like using best in class integration (positive screening factors), active ownership, and engagement are also incredibly important,” according to Liddle.
Myth 5. It is not doomed to fail in emerging markets
Corruption, political interference and state capture are cited as factors that make sustainable investing nearly impossible in emerging markets.
“There is no better place for environmental-, societal- and governance-focused approaches to take root. Striking better reporting standards in emerging markets will be a critical part of the equation, though. Asset managers that take sustainability issues into account when structuring portfolios make better-informed investment decisions that lead to better returns in the long term,” Liddle concludes.
