Sustainable investing doesn’t mean waving goodbye to profit

In reality you can expect to get the same if not better returns through sustainable investing.
Sustainable investing is not philanthropy but a sophisticated sector with institutional-quality fund managers launching new strategies every year. Image: Supplied

Most people like the idea of investing in companies that are mindful of climate change and other concerns, but when it comes down to the nitty gritty there’s often a caveat: ‘As long as my return doesn’t get affected by it’.

There’s this persistent myth that goes back to the 1980s and 1990s, when socially responsible investments first launched, that you can’t get as good a return when investing in sustainable sectors – but there is little evidence to back those fears.

Morningstar data shows that in the last three to five years the track records of sustainable funds have proven strong, with 2018 being a bumper year: sustainable funds outperformed benchmarks, with 63% in the top half of their categories and just 37% finishing in the bottom half of their respective categories for the year.

Broader stock market returns in 2018 were the worst since 2008, with bond market returns sitting at their lowest since 2013.

So there’s no evidence that this is an underperforming way to invest.

There’s a disconnect between people’s aspirations of the world they want to live in and the behaviour of their capital in the financial markets. Imagine linking people and organisations with capital that ensures investments that reflect the goals and aspirations people have for their world.

Mainstream fund managers are increasingly starting to look at sustainability data more carefully – and as the data improves in quality and quantity, it is becoming clear that environmental, social and corporate governance (ESG) issues are not only relevant to values-oriented investors but also drivers of corporate financial performance and risk mitigation.

Investors are recognising that ESG issues need to be incorporated into investments as part of being a good investor. And it doesn’t stop there. Institutional signatories to the United Nations Principles for Responsible Investment network have ballooned to over 1 800 – that’s more than half of all global financial assets.

The launch of the UN Sustainable Development Goals (SDGs) in 2015 demonstrated the scale of the challenge: over $2 trillion a year is needed for the next 15 years to achieve the SDGs and assist in fixing society’s big problems.

Government investment will only provide a small part of this. Private capital is needed to do the heavy lifting. So what is standing in the way?

There are three main barriers to widespread adoption of sustainable and impact investing.

1. Awareness

Sustainable investing is fast becoming mainstream, yet too many people are either unaware of it or don’t understand how to incorporate it in their portfolios.

2. Accessibility

The sustainable investing product set has come on a long way over the last few years, but more needs to be done to make it easier to invest.

FedGroup has done just that with its online Impact Farming platform. Borne from the increasing pressure on the national grid, the supply of fossil fuels, and demand for alternative energy source, its urban solar farming offering allows individuals to buy a panel installed on a shopping centre or industrial unit. The landlord saves on energy costs while investors receive a share of the profit. At the time of writing the price per solar panel was R5 000 and there were 2 000 available to purchase, with an advertised return of 10 – 12%.

3. Attitudes

There are still plenty of misconceptions when it comes to sustainable investing. Many people think that you have to sacrifice financial returns when in reality you can expect to get the same if not better returns through sustainable investing.

People confuse sustainable investing with philanthropy and don’t understand how sophisticated the sector has become, with institutional-quality fund managers launching new strategies every year.

We have come a long way since the early 2000s when I entered the renewable energy sector, but sustainable investing is still on the periphery for investors. I believe if we can overcome these obstacles, we will have finally turned sustainable investing mainstream and will have established the critical link between capital and the aspirations people have for the world.

Terry Billson is the CEO of Genergy.


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