Sustainable investing has come a long way with a significant portion of assets under management globally now being invested with consideration of environmental, social and governance (ESG) factors.
Alex Hoctor-Duncan, Global Head of Aberdeen Standard Investments explains: “Consumers may decide to shop locally over a large supermarket chain, consider whether a product is sustainable before they make a purchase, or buy minimal produce to reduce food waste.It is these small conscious decisions that allow them to feel they are making an impact in a world where climate change is top of the agenda.
“Yet, when it comes to saving and investing money, these decisions aren’t always at the forefront of investors’ minds. Investors are relying upon advisors and asset managers to help them navigate the world of sustainable investing and make these all important decisions.”
According to research commissioned by Boring Money and Aberdeen Standard Investments, amongst investors already holding funds, 42% said they are currently invested in sustainable or ethical funds and a further 12% said they are planning to in the next six months. This has grown considerably over the past 12 months and has been accelerated by the pandemic.
Alex adds: “The appetite is there, but what lacks perhaps is the amount of clear communication and tangible evidence of impact surrounding investing sustainably.
“Investors seem less interested in the internal processes surrounding Environmental, Social and Governance (ESG) factors, and are more concerned with the overall impact factors and how they as an individual can make a difference in today’s world.
“They want to see real results when it comes to investing sustainably. For example, If an investor can see that they have helped to ‘save 50 trees’, they will feel reassured in their conscious decision to invest in the fund. If they cannot see this tangible impact however, many will default to the returns of the fund as the only measurement of its performance.”
According to the Boring Money research, when presented as a binary option, more investors pick performance over sustainability. There is also a perception that investors may need to sacrificesuch returns in order to invest sustainably.
Yet, there is growing evidence to dispel such concerns given recent evidence of how ESG funds have performed globally – those funds that adopt some form of ESG strategy have outperformed traditional funds over the past five years.According to the 2019 Invesco Global Sovereign Asset Management Study, two-thirds of sovereign wealth funds in the Middle East have implemented a top down ESG approach.
Alex continued: “As an asset manager, we are pledging to tell more about the returns story when it comes to investing sustainably. We need to help investors recognise the returns potential of their socially-conscious investment decisions. We also need to increasingly communicate the evidence of impact to instil confidence and belief that investors are making the right choice.
“All of us need to save, invest and spend with deliberate sustainable principles if we are to deliver wellbeing to both the planet and people. We need to consider the planet as a whole rather than a discrete series of countries and we shouldn’t need anything more than our beliefs to drive the right agenda. We are all living longer and the old system simply will not pay for – or establish – a more balanced future, and so we must start to understand how to consciously save and spend.”