Investors are increasingly realizing that sustainable practices are not only essential for the well-being of our planet and society, but it is also possible for them to balance environmental and social impacts with their investment goals. In fact, the number of ESG Focus Funds has grown 144% since 2004[1]. Additionally, asset managers globally are expected to increase their ESG-related assets under management to $33.9T by 2026, a significant increase from $18.4T in 2021[2]. In this blog, learn about sustainable investing and strategies and how you can align goals with purpose.
The Rise of Sustainable Investing
Sustainable investing, also known as environmental, social, and governance (ESG) investing, has gained traction over the past decade. The driving force behind this movement is the growing awareness of the impact that companies can have on the environment, society, and corporate governance. Investors are now looking beyond financial goals to support businesses that are committed to making positive contributions to the world.
According to a report by The Motley Fool, sustainable investing has garnered significant interest from investors, with 79% of them expressing an interest in such investments[3]. The focus on sustainability has become a key consideration for investors when making financial decisions.
The Risk-Adjusted Opportunity of Sustainable Investing
Sustainable investing can provide competitive growth but also may offer a risk-adjusted opportunity. According to the research conducted by EY (Ernst & Young), sustainable funds experienced a 20% smaller downside deviation than traditional funds from 2004 to 2018[4]. A reduced market risk may be an attractive feature for investors seeking stable returns even during economic downturns or market fluctuations.
Dispelling the Myth of Financial Trade-Off
Despite the compelling data supporting sustainable investments’ financial benefits, a common myth persists that sustainable investing requires a financial trade-off. However, Matthew Slovik, Head of Global Sustainable Finance at Morgan Stanley, has a different opinion, emphasizing that companies with strong social or environmental practices may outperform their peers across various measures[5].
“The myth that sustainable investing requires a financial tradeoff has been surprisingly sticky, despite research demonstrating that companies with strong social or environmental practices outperform their peers on a variety of measures,” – Matthew Slovik
Through extensive analysis of thousands of mutual funds across multiple asset classes, Morgan Stanley’s research reports that sustainable investments can help investors achieve various financial objectives.
Final Thoughts
The rising interest in sustainable investing among individual investors and institutions reflects the growing awareness of the importance of sustainability in financial decision-making. As investors, we have the power to shape the future by supporting companies that prioritize ESG factors, making a positive impact on the environment and society.
The movement towards sustainability in the financial world is gaining momentum, and as more investors recognize the benefits of sustainable investing, the greater the positive impact can be on our planet and society. Embracing sustainable investing may contribute to a more sustainable world but also help with financial goals. As the financial landscape continues to evolve, sustainable investing can help make a brighter, more sustainable future for all.
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[1] https://www.morganstanley.com/content/dam/msdotcom/ideas/sustainable-investing-offers-financial-performance-lowered-risk/Sustainable_Reality_Analyzing_Risk_and_Returns_of_Sustainable_Funds.pdf
[2] https://www.pwc.com/gx/en/news-room/press-releases/2022/awm-revolution-2022-report.html
[3] https://www.fool.com/investing/stock-market/types-of-stocks/esg-investing/sustainable-investing-important/
[4] https://www.morganstanley.com/ideas/sustainable-investing-competitive-advantages
[5] https://www.morganstanley.com/ideas/sustainable-investing-competitive-advantages
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The information presented here is for general informational purposes only and is not intended to be, nor should it be construed or used as, comprehensive offering documentation for any security, investment, tax or legal advice, a recommendation, or an offer to sell, or a solicitation of an offer to buy, an interest, directly or indirectly, in any company. Investing in both early-stage and later-stage companies carries a high degree of risk. A loss of an investor’s entire investment is possible, and no profit may be realized. Investors should be aware that these types of investments are illiquid and should anticipate holding until an exit occurs.
