ESG principles are embedding across the financial landscape at an accelerating pace. Fast becoming the rule rather than the exception.
ESG Investment
Socially responsible investment (SRI) and the use of ESG investment criteria to guide investments has moved into the mainstream.
There is now overwhelming evidence that sustainable investment can deliver comparable returns with traditional investments and also offer opportunities for outperformance based on reduced risk.
​
ESG investing has been driven by key changes in investor behaviour. Many private investors want a more active, objective driven approach. There is also a realisation that ESG focused investments are not just philanthropic but a way to future proofing your investments where performance need not be compromised.
​
Sustainability and fair opportunity have led to investors pursuing the concept of a healthy balance between investment returns and the long-term preservation of our natural resources and the respectful treatment of labour and equality.
The traditional approach to ethical investment focussed on excluding ‘sin’ companies. However, this approach is now seen as too narrow. We are witnessing a far higher level of sophistication being applied to ESG screening with funds now becoming much more active and targeted in their methodology.
​
The Norwegian state pension fund has, by its own calculations, given up 1.9 percentage points of return over the past decade by excluding weapons makers, coal producers and other companies it finds ethically challenged. The latest strategies, which we adopt, take a more positive approach by seeking sustainable investments that have a greater potential to boost returns. This is achieved by integrating environmental, social and governance (ESG) considerations into the investment processes.
Critics of ESG investing have suggested that performance is compromised.
However, this appears to be a rather old-fashioned perception countered by the facts.
​
A recent study by Morgan Stanley evaluated over 10,000 funds. Concluding…. “Investing in sustainability has usually met, and often exceeded, the performance of comparable traditional investments.”
​
This was made on both an absolute and risk-adjusted basis, across asset classes and time periods.
​
This study also illustrates the outperformance of the MSCI KLD 400 (an index constituted of firms that meet very high ESG standards), which achieved and annualised return of 10.2% since 1990.
​
During the same period, the S&P 500 achieved and annualised return of 9.7%.
All our investments are rigorously screened using the three principles that form the core of our ESG investment philosophy. The ESG credentials of each index-tracker fund or exchange-traded fund is validated in accordance with our stated ESG principles namely, environmental, social compatibility and good governance. We only use funds that are clearly designated ESG investments.
​
ESG factors and screening can be applied across global equity markets, bonds and indeed alternatives.
ESG Fund Selection
All our investments are rigorously screened using the three principles that form the core of our ESG investment philosophy. The ESG credentials of each fund or exchange-traded fund is validated in accordance with our stated ESG principles namely, environmental, social compatibility and good governance. We only use funds that are clearly designated ESG investments as measured by Morningstar sustainability ratings and MSCI ESG Ratings.
"ESG investors can follow their convictions without fear of compromise."
Prof Mike Buckle
Investment Manager
