One of the most popular trends in the economic landscape is a sustainable investment, notably, sustainable investment funds.
Sustainable investing is an investment discipline that considers environmental, social, and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive social impact.
Sustainability is a concept on everyone’s lips, including conversations in the economic landscape. Consequently, it is very common to talk about sustainable investment funds, a trendy option nowadays and one that every investor should keep an eye on.
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What is a sustainable investment fund?
There are several motivations for sustainable investing, including personal values and goals, institutional mission, regulation as well as the demands of clients, constituents, or plan participants.
Sustainable investors aim for strong financial performance and believe that these investments should be used to contribute to advancements in social, environmental, and governance practices.
In short, when we talk about a sustainable investment fund, we are referring to a portfolio of investments that comply with different environmental and social requirements aimed at improving people’s lives. Recently, the EU has launched a regulation that specifies the metrics applicable to ESG and makes the investment landscape more secure and understandable to the everyday investor, trying to move away from greenwashing and ensuring money goes to where it can make a difference. Investments in such funds have risen sharply in recent years, as investing in them means supporting the environment and social welfare. Companies with lower environmental, social and good governance risks tend to have a lower capital cost and a higher valorisation than those with worst results from a sustainability point of view, as shown on this study by the “Journal of Impact&ESG”.
Sustainable investing offers benefits to investors and to society. It works for investors because it helps them address the decision-making process more comprehensively and better. It works for society and the planet because it as a discipline its goal is obtain competitive financial returns in the long term and generate positive social impact.
There is a progressive awareness of the public led by specific demographic groups: millennials, the next generation to invest. More and more investors are looking to generate a positive impact by looking beyond financial relevance to ecological and social relevance.
2015 and 2016 were a strong tailwind for sustainable investment with the establishment of the 17 sustainable development goals by the United Nations to be achieved by 2030 and the signing of the Paris agreement against climate change.
Sustainability funds and ETFs are on the rise, dominating more and more mainstream conversations about investing. Young people are firmly committed to environmental protection, fair working conditions and equality. For the newest generation of investors, investing sustainably is part of that commitment. But they’re not the only ones — even experienced investors are recognising the opportunity to contribute to a better world.
Are sustainable investment funds profitable?
The European sustainable investment funds study 2021 shows that sustainable fund products attracted 52% of all net new flows in 2020, and reflected 11% of total net assets domiciled in Europe at the end of 2020; and according to Morningstar, in 2020 sustainable investment funds manage to capture net new assets of $51 billion, doubling their achievement from 2019.
Due to this increasing demand, investors are no longer willing to accept weaker returns from sustainable funds. In an EY 2021 private equity survey, almost half of the investors said they expect to expand their investments in private equity and venture capital funds that focus on environmental, social, and good governance factors over the next two to three years.
Are sustainable investment funds profitable? Without leaving aside the most basic investment principles and trends, sustainability is a term that needs to enter our economic vocabulary. With the future investors putting ESG criteria to the front, firms that fail to offer ESG strategies will be put at a further disadvantage.
And the good news is that investing in sustainable funds is growing due to personal goals but also because it has been proven long ago that responsible investing is not equivalent to reduced returns.
Sustainable investment funds are generally profitable and will become increasingly so. It is no longer the case that a fund with a sustainable purpose only serves to make a good image. Today, more and more studies and historical data show that these investments are performing well and yield equal or even greater returns than traditional funds.
When investing, your capital is at risk and you may recover less than the original investment. Please invest aware.