The truth about ESG and sustainable investment
10 things to know about
ESG and sustainable investing
Sustainable investing is an investment discipline that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and as well as better social and environmental practices.
Recently, politicians in Congress and state legislatures have attacked ESG and sustainable investing as irresponsible, ineffective or partisan in nature. Nothing could be further from the truth.
Here are ten reasons why sustainable investing is needed and is here to stay:
Sustainable investing
is main street investing.
Source: Morgan Stanley
Professional and "main street" investors want to align their investments with critical ESG criteria to achieve long term returns and their hope and vision for a sustainable future, and main street investors want to preserve the things they value.
Types of investors:
- Individual retail investors, including high net worth individuals
- Asset managers such as mutual fund companies or private equity funds
- Institutional asset owners such as public pension funds, insurance companies, educational institutions, philanthropic foundations and others.
Motivations/goals:
- Individual investors may be driven by personal values and goals while institutional investors may be guided by their mission.
- Financial advisors and asset managers may want to respond to the demands of clients or plan participants.
ESG considerations are about investment results,
not politics.
Prudent investors consider financially material ESG factors when managing risk and seeking investment opportunities.
Experienced sustainable investors use ESG data along with other sound financial analysis to make long-term investment decisions that make sense given today’s real and meaningful environmental, social and governance challenges.
Source: MSCI
The market has embraced
investment practices that put ESG at the core.
Employees and customers want companies to be good actors.
Companies with strong ESG performance can achieve lower cost of capital. They can gain access to cheaper debt and equity financing as financial institutions view them as lower risk.
Sustainable investors are
investing in a better future.
Sustainable investors seek investments in resilient companies that can address structural and systemic risks while finding innovative opportunities in a more sustainable economy.
They provide capital to the most innovative parts of our economy, including electric vehicles, solar panels, sustainable and green building technologies. They invest in innovations in biotechnology and science to help people live healthier lives and adaptive technologies to help traditional industries adjust to a more sustainable future.
Source: US SIF Trends Report
Source: NASA
Sustainable investing is an important strategy
for addressing climate change.
Climate scientists continue to warn that our economy must change to mitigate the greatest harms of climate change. Meaningful policy changes are the most important strategy to address this, but the role of investors in moving assets from “dirty investments” to “cleaner” ones also plays an important part.
The most recent IPCC report concluded that climate change may be happening more quickly than expected. Unless there are immediate, rapid and large-scale reductions in greenhouse gas emissions, limiting warming to close to 1.5°C or even 2°C in the next few decades will be beyond reach.
Time is running short and more dramatic steps are necessary to reduce the impact of a warming climate. The role of sustainable investors has never been more important.
Politically motivated and simplistic attacks on "ESG"
hurt the economy and politicians' constituents.
Attempts by policymakers to remove or prohibit sustainable funds as an option in pension or government funds amount to ideologically motivated political posturing that undermines smart investments in their state’s future.
These efforts will reduce investment choice and prevent investors from selecting investments from hundreds of institutions, including leading financial services firms. This, in turn, will increase risk and borrowing costs.
Sustainable investing represents
the free market.
ESG investors are voting with their dollars and seeking investment opportunities that fit their values and will benefit in a sustainable future.
Investing sustainably
reduces risk.
Fiduciary Duty
Sustainable investment professionals have a fiduciary duty to manage risk and return on behalf of their clients; not to consider material ESG factors would be a breach of duty.
Core Element of Investing
Institutional asset owners, among the most sophisticated investment management professionals, view investing using ESG metrics as “a core element of investing,” according to a Morningstar study.
Long-Term Benefits
Numerous studies point to the long-term benefits of sustainable investing.
Investors and their advisors are becoming
more sophisticated.
Individuals have a range of educational tools and resources to help them find best-in-class sustainable investment managers and approaches. Examples include Morningstar, As You Sow and the US SIF Foundation's Education Center.
Increasingly, financial advisors are building sustainable practices and completing advanced training and accreditation.
Learn more about the CSRIC designation
The sustainable investment industry has
grown in sophistication and rigor.
Industry leaders and practitioners are encouraged to adopt and follow industry best practices:
INCREASE
transparency and
accountability
DEEPEN
incorporation of
ESG factors
PARTICIPATE
in field building
to amplify impact
ENGAGE
in investor advocacy
to advance ESG issues
MEASURE
and manage
impact
ADVANCE
public policy on
sustainable investing
This website is presented by US SIF: Sustainable Investment Forum, the leading voice advancing sustainable investing across all asset classes. Its mission is to rapidly shift investment practices toward sustainability, focusing on long-term investment and the generation of positive social and environmental impacts. US SIF’s hundreds of members represent more than $5 trillion in assets under advisement or management.
US SIF is supported in its work by the US SIF Foundation, a 501(C)(3) organization that undertakes educational, research and programmatic activities to advance the mission of US SIF.
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Sustainable Investing: An Online Course for Individual Investors
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Adding Sustainable Funds to Defined Contribution Plans: A Resource Guide for Plan Sponsors
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Getting Started in Sustainable Investing: A Guide for Individual Investors
Want to learn more? Visit the US SIF Education Center!
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