Find out what sustainable investing is, and whether it’s truly transforming the world or just another buzzword. (3-min read)

 

This information does not take into account your personal objectives, financial situation or needs. You should consider if the relevant investment is appropriate having regard to your own objectives, financial situation and needs.

 

What is ‘sustainable’ investing? Is it a buzzword used to lure socially-minded investors, or our best bet for tackling humanity’s greatest challenges?

When executed properly, it’s more likely to be the latter.

But before we dive into this growing trend, let’s sort out the semantics first since there are many terms used interchangeably (which don’t all mean the same thing).

Socially Responsible Investing (SRI)

You could consider sustainable investing as a subset of the rapidly growing SRI sector.

The umbrella term is referenced as the overarching link between all related investment approaches, each with varying degrees of impact – from ‘ESG integration’ to ‘impact investing’.

 

investor matrix for degrees of impact

 

According to the Responsible Investment Association of Australasia (RIAA):

“responsible investment is a process that takes into account environmental, social, governance (ESG) and ethical issues into the investment process of research, analysis, selection and monitoring of investments.”

They’ve conveniently mapped out the various ways you can invest responsibly/ethically below:

 

Impact-spectrum

 

Using the RIAA’s spectrum as a guide, we believe the Clean Disruption Fund would fall under the “Thematic/Sustainability Themed Investments” category. This fund invests in companies driving the clean disruption of energy, transportation, waste management and transport.

You’ve likely been exposed to some or all of the terms pictured above via the constant stream of recent news and reports stating findings like:

90% of Australians expect their superannuation or other investments to be invested responsibly and ethically
• The world’s largest asset manager (Blackrock, over $6 trillion under management) has made it clear that all companies should “serve a social purpose
76% of millennials globally regard business as a force for positive social impact

What’s driving the sustainable shift?

Millennials tend to be at the centre of these reports, often referenced as the driving force behind the growth of sustainable investing. There are, however, other factors at play.

Humankind faces significant challenges in the next 30 years as the world’s population increases and demands more from our planet. As such, there is accelerating awareness and implementation of strategies to build a more sustainable world and economy. We will need to:
• halve emissions,
• double our energy capacity (in an efficient manner) and;
• process double the current levels of waste.

We have a relatively long to-do list to tackle if we’re going to create a more sustainable future for all.

Both companies and investors have a role to play in solving these challenges, in conjunction with the public sector (government) and civil society (public).

All of the above is driving the demand for sustainable investment, with each challenge providing a unique opportunity to fuel its long-term growth.

I’m not convinced

If you’re still unsure about what it means to invest sustainably/responsibly/ethically (whatever your preferred terminology might be), you could think of it as voting with your wallet.

It’s about using your investing power to send a message to fund managers, companies and even governments that you’re not willing to compromise on your values for the sake of profits – you want to have your cake and eat it, too.

You might be thinking: ‘I’m all for solving problems, but I want to make money, too’.

Fortunately, investment performance and your values don’t need to be considered separately when you look at how sustainable investments have been tracking so far.

One of the key findings from the RIAA’s Responsible Investment Benchmark Report found:

“Funds that are implementing Core responsible investment strategies are outperforming equivalent Australian and international share funds, and multi-sector growth funds, over most time horizons.”

The report examined the size, growth and performance of Australia’s responsible investment market. Looking abroad, Morgan Stanley (US investment bank) evaluated more than 10,000 funds and managed accounts to find:

“Investing in sustainability has usually met, and often exceeded, the performance of comparable traditional investments. This is on both an absolute and a risk-adjusted basis, across asset classes and over time.”

We believe the trend of companies building a better world through their products and services is set for multi-decade growth, particularly given the growing consumer shift toward spending money in a way that aligns with their values.

As investment managers, it seems logical that companies focusing on sustainable practices, offering products and services aligning with this consumer demand, are more likely to achieve stronger, long-term growth prospects.

We’re excited by the growth and uptake of this investment strategy, and look forward to offering more ways for investors to take part in the world-changing shift.

 

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About Kent Kwan

Kent Kwan is a Co-Founder of AtlasTrend, an investment platform that makes it easy for anyone to learn and invest in trends impacting our world. Kent has over 17 years experience in financial markets including as Chief Investment Officer at Arowana International Limited, and roles at JP Morgan and Macquarie.