The world is becoming more aware of the pressing issues we face, from economic and social inequalities to the catastrophic effects of climate change. While the pandemic has heightened these issues, it has given us the chance to pause and reassess our priorities.
With growing awareness of these global problems, investors recognise they have a responsibility to make a difference. This is a key finding in our Sustainable Investing Review 2021. Now into its fourth year, this annual investor survey shows that sustainable investing is at a ‘tipping point’.
At 81 per cent of the total group surveyed, interest in sustainable investing is at an all-time high, as investors look beyond returns to positive impact, no longer seeing the two as mutually exclusive. They want to use their wealth to help solve the pressing challenges faced by the world. From improving access to healthcare and clean drinking water, to promoting economic inclusion for women and addressing climate change, investors are on the lookout for opportunities to make a difference.
Overwhelmingly, investors we spoke to – right across the wealth spectrum – are either intending to or already invest in sustainable investment solutions. We also found that the allocation of sustainable investments in investor portfolios is on the rise: 13 per cent of investors already have more than 25 per cent of total investments channelled into sustainable solutions, compared to just 2 per cent in 2020.
These trends are encouraging. The next step will be seizing this fundamental shift in attitudes to make sustainable investing a more mainstream investment option.
For some investors, apprehension still prevails: Will I need to sacrifice returns for impact? How can I measure the impact my wealth is making on the causes I support? Is it risky? Should I donate instead? As wealth advisors, we have a responsibility to provide the information investors need to answer these questions.
There is increasing evidence that companies with higher ESG standards are more likely to perform better in the long term, with relatively lower risk to their outlook. For an investor, this stronger governance means that they can obtain the same return with less risk, along with positive impact on the environment and society.
When it comes to measuring impact, the financial sector is working together to develop industry standards that will make this easier. And while philanthropy is helpful, sustainable investments go further in offering scale and long-term benefits.
Our Sustainable Investments Classification framework, supported by data from leading ESG and corporate governance research and analytics firms, Morningstar and Sustainalytics, helps us have more informed conversations with our clients and address some of their apprehensions.
We want to help our clients make a positive impact on society and the environment with their investments. The United Nation’s Sustainable Development Goals, which aim to tackle pressing global challenges, currently face an annual funding gap of USD2.5 trillion. There is a massive opportunity to channel private capital through sustainable investments to help bridge this gap.