Is Sustainable Investing Profitable?
While it might seem that sustainable investing is only for the well-heeled, the numbers show that it can be extremely profitable. Many women in finance are attracted to this niche, and it is an area of finance where a gender balance is unusual. Acre Resources, a recruitment firm, reports that 44% have been filled in sustainable investing roles over the past five years. This trend is still being challenged.
Invest in companies that are strong on sustainability issues
There are a number of reasons why investing in companies that perform well on sustainability issues is beneficial. These issues include protecting the environment and fighting pollution. These issues are often overlooked by traditional investors, and this can lead to additional risks and loss of profits. Companies that are doing good work are more likely to be sustainable and receive additional support from investors. Sustainability is a proven strategy in risk management.
Besides providing investors with a better opportunity to sleep at night, sustainable investing can also help fight a number of pressing issues around the world. The influx of capital into a company has its own effect on the stock market. Companies are able to innovate and grow because of the investment dollars. Investing in companies with high levels of sustainability can actually increase a company’s share price. These investments are popular with wealthy investors, but they are often resisted by their financial advisors. These advisors remain stuck in outdated paradigms, and are not inclined help the wealthy build a more sustainable investment portfolio.
Investing in companies with a strong ESG record
For investors who want to make an impact on the world around them, investing in companies that do well on ESG issues can be a good investment strategy. There are several factors that contribute to this outperformance. These factors can be difficult to measure but are nevertheless important. It is important to invest in companies that are committed and focused on social issues, in addition to the top performing companies within their industry.
For investors concerned about social and environmental issues, executive compensation is a key issue. Many large corporations are cutting executive compensation, but many are still very rich. Finding companies that care about ESG issues, particularly executive compensation, is the solution. The Kiplinger ESG 20 List is made up of companies that invest responsibly, and whose executives have pledged to reduce their compensation.
Barriers to sustainable investment
According to Morgan Stanley’s Sustainable Signals white paper, the largest barrier to investing sustainably is the lack of transparency. The study revealed that institutional investors were concerned by greenwashing and the lack of reliable data. Institutional investors have expressed interest to sustainable investments. However, the actual implementation and use is much lower. Investors have been reluctant to invest into sustainable funds, which could be contributing to the low adoption.
Although younger generations are more likely to invest sustainably than their elders, barriers to sustainable investment remain. Only two-thirds, if not all, of millennials have a framework for discussing clients’ sustainable investment preferences. Despite this, advisers often rely on a single question when discussing the topic with clients. Advisors would also benefit from more guidance from asset managers on terminology and educational material.