This investment insight delves into sustainable investing and how it is changing the way investors invest, as well as having a measurable impact on society and our planet.
- Sustainable investing began a long time ago, but the recent movement began in the 1960s and its popularity has soared over the past few years—38% hike in assets since 2016 alone.
- This exceptional growth is linked to a desire to invest in companies that align with one’s values; the recognition that investor dollars can be directed in a way to foster positive environmental and social change, and the need to generate returns on par or better than traditional investment strategies.
- Between environmental, social, and governance (ESG) and socially responsible investing (SRI), ESG is more inclusionary, comprehensive, and dynamic—and when integrated into a portfolio, it may help permit investors to invest according to their values and also achieve their investment goals.
The investment world is continuously evolving, with one of the most notable transformations of our generation under way. Increasingly, investors no longer wish to keep their good intentions for society relegated to charitable giving but are also looking to “do good” with their investments. We think the best way to achieve these personal and financial goals is to apply a set of socially conscious standards that focuses on the long-term sustainability and ethical behavior of a company, which is referred to as “sustainable investing.”
Sustainable investing comes in many forms and can mean different things to different people. We seek to clear the air on this changing space and offer some perspective on what we view as one of the most effective ways of investing to generate long-term gains from both the societal and financial perspectives.
At its core, sustainable investing is redefining what many investors mean by “long-term investing.” Historically, “long term” has been consistent with one or more complete market cycles spanning many years. In recent years, we feel like that has devolved into an increasingly short-term focus, concentrating on quarterly performance (encouraged by the hedge fund industry over the past two decades). We believe the exceptional growth of sustainable investing has, in part, been a response to the flaws of this short-term thinking. To achieve their goals, investors are recognizing the necessity of maintaining a longer investment horizon that includes the expected impact companies have on society.
As we will discuss in a later section, sustainable investing encourages companies to focus less on near-term earnings targets and more on long–term profitability. Importantly, sustainable investors also believe that, over time, this type of focus from a company will yield higher returns. Said differently, sustainable investing is a way of achieving both social and financial goals.
Please see important disclosures at the end of the article.