Setting a trend

Investment with heart

A new business trend.
Sustainable investment

For years many organisations have spent time and money trying to evaluate the benefit of sustainable investment.

In recent years the evidence has increased, proving that responsible investing can be a key driver of long-term value creation.

This can spell great benefits and could increase shareholder returns. The question asked by investors remains the same: Can this offer the best of both worlds?

Despite the perception that to invest responsibly, investors have to sacrifice competitive financial returns; studies conducted by sustainable asset management (SAM) reveal that companies with high sustainability scores outperformed their counterparts with low sustainability scores.

The results as they say, speak for themselves. It reveals a positive link between sustainable and financial performance, during both the financial crisis and post-crisis periods.

Cromwell Mashengete, portfolio manager at Prudential supports this: "Overall, the findings of this research confirm that companies which adopt sustainability best practices are not contradicting or neglecting their primary objective, which is to maximise their shareholders' profits."

"Investing in sustainable companies contributes to superior long-term investment results with improved risk profiles."

Responsible investing is gaining popularity as a key determinant of evaluating investment opportunities 

Asset owners and asset managers with trillions in assets under management, about 20% of the world's capital, are signatories to the United Nations Principles for Responsible Investment (UN-PRI) – a network of international investors who commit to incorporate environmental, social and governance (ESG) issues in their decision-making and ownership practices.

"The belief is that investors should examine the corporate social responsibility practices and performance of companies because they have a material impact on financial performance," says Mashengete. 

Including environmental, social and governance ensures a complete evaluation. 

"Responsible investing encourages custodians of investors' funds to generate long-term financial returns in a responsible manner that recognises the external costs, the cost that a producer or a consumer imposes on society, that are incurred by the companies that we invest in," says Mashengete.

To truly reap the results of responsible investing, companies need to remain committed to this. Mashengete emphasises that to maximise the benefits of responsible and sustainable investing, companies however need to truly embrace these values and not treat them as a compliance checklist.

Companies can maximise long-term value creation by integrating ESG factors into the company strategy, the measurement of outputs, and the assessment of risks and opportunities.

Research accompanied by anecdotal evidence and a groundswell of industry opinions makes a strong case that the investment industry will see a steady increase in the incorporation of ESG factors in global and local investment decisions.

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Issue 23


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