“Grey my friend, is every theory, and green alone life’s golden tree”
– Quote from Mephistopheles in the play Faust (1808) by Johann Wolfgang von Goethe
If it is green and clean, I’ll have it, German investors are telling financial advisers, highlighting the growing awareness among private fund buyers of pro-sustainability choices and the pressures on financial advisers to adjust their offering to the social, ecological and ethical standards that matter more and more to their clients.
In a recent survey* carried out for BNP Paribas Asset Management, 79% of private investors in Germany said they expected financial advisers to include sustainable investment funds in their product portfolio. Every third respondent considered social, ecological and ethical criteria important when selecting the right investment product for their needs, next to security (64%) and returns (56%).
Looking more closely at desirable investment characteristics such as the environmental, social and governance (ESG) features of a company or another issuer of securities, 43% rated aspects such as the exclusion of arms companies as extremely important or very important, 42% said social standards such as employment protection or fair pay mattered and for 34%, ecological criteria such as renewable energy or environmental protection were extremely or very important.
Interestingly, 65% of respondents considered sustainable investments to be equivalent to more traditional forms of investment such as equities and bonds in terms of returns, underscoring our long-held belief that investors need not lose out when opting for sustainable and responsible investments (SRI). This was borne out in a study on the effect of corporate sustainability on organisational processes and performance by Harvard University. It showed that ‘high sustainability companies’ significantly outperform their counterparts over the long-term, both in terms of stock market and accounting performance. Making another comparison, the MSCI Emerging Markets SRI index has outperformed the broader MSCI Emerging Markets index by 4% a year since 2011.
However, investing sustainably is not just about higher returns. Consideration of ESG criteria when selecting an investment can be effective in limiting investment risks. Ecological, social or governance issues – product recalls, spills and misaligned stakeholder interests – have been known to affect share prices and wipe large amounts off the market value of companies.
So next to selecting the right products, thematic areas or companies to invest in, it is becoming more important to weigh up the ESG characteristics criteria and assess whether – and how – they can positively impact the risk/return ratio of an investment. The result is an attractive blend of economic opportunities and the benefits of being on the right side of social and ecological developments.
Written on 16 March 2017
(*) In February 2017, an online panel of more than 1 000 financial (co-)decision-makers aged between 18 and 65 were surveyed to find out how much internet-savvy private investors know about sustainable investments and how interested they are in SRI products.