What if you could make money while helping build a sustainable future - for you, your children and your grandchildren? Would you choose to invest in businesses that consider their impact on the environment and the welfare of your community? What if this decision not only feels good but is also good for your bottom line?
Make money, change the world. That’s sustainable investing.
Sustainable investing is not a new concept but now a commonly accepted one. It’s building momentum and now the fastest growing area of the market. Between 2014-16, in Australia it grew by 247%, in the US it grew by a third, and in Canada by 49%.
Is sustainable investing a good long-term investment?
The public are voting with their wallets
“With Australian shoppers increasingly basing spending decisions on how ethical they perceive a business to be, and the impact that business has on the environment and society in general, sustainable business practices are no longer a nice to have — they’re essential for any size of business competing today.” Martin Seward, Vice President of American Express Global Commercial Services
According to a 2018 International Survey, 73% of people actively seek out businesses that offer sustainable products. This is a 63% increase from 2011.
Even the number of people willing to pay more for products from companies committed to positive social and environmental impact is rapidly increasing.
This demand from consumers should lead to greater financial rewards for companies able to cater to them - a solid basis for growth and profits.
This shift in public opinion is driving change across industries all over the world including health, clothing, manufacturing, the energy sector and more.
Impact on investment values
Smoking tobacco is known to cause a huge number of health issues, and as a result, companies who profit from it are losing support from the public. With many health professions no longer willing to passively accept this, they are withdrawing investment from tobacco companies and wielding their influence on others. It is having an impact too. While three of the biggest tobacco companies remain highly profitable, their share prices have hardly moved in the last 5 years. Compared to the broader market, this represents a significant level of underperformance, which is attributable, in part, to the ethical and sustainability issues they face.
The fashion industry, in particular, has been called out for the use of child labour, exploitative wages and dangerous working environments in their supply chains. As a result, many fashion industry influencers are leading the movement away from “fast fashion” (cheap and short-lived pieces) towards “slow fashion” (more expensive but durable options) to support and enable brands to have ethical overseas practices, and minimise waste.
Changing Perceptions of Risk
There has been little to no investment in fossil fuel power stations in Australia in the past decade, and many older plants facing closure. Banks also appear reluctant to fund new plants. Partly driven by the federal government’s inability to legislate on carbon pricing, and also in recognition of the global sustainability movement -- to focus on clean and renewable power generation. While there is still a need for baseload power generated from fossil fuels (and will be for some time), given the current future direction of the industry, the longer-term valuations of these assets are precarious.
As you can see, it is not just a single industry trend, but a global one. With growing pushback from communities and consumers that expands across many issues, and across all industries. Poker machines and plastic waste are only two notable examples where strong public opinion is putting pressure on governments to legislate and drive change. Further putting into question the viability of companies who sit on the wrong side of this movement.
Sustainable investing is about considering these issues in addition to the purely financial ones. While understanding they also have a financial impact now and in the future.
How can you know your investment is making a meaningful impact?
This is a question investors have been asking for years, but has only recently become easier to measure. Through social, environmental, and governmental impact measures it is possible to assess and compare the difference between individual investments, and portfolios as a whole.
For instance, by applying a sustainability screen to one of our core international share funds we can see the companies in the portfolio generated 74% less in carbon emissions, than the companies who made up the MSCI world index (as at 31/12/2017). Not only a significant difference but highly tangible.
This provides you with evidence that these investments are significantly different than a standard portfolio, and can be assessed against both financial and sustainable outcomes.
Also, these portfolios are constructed with the same underlying principles for investing that Knightswood House bases ALL it’s investment strategies on, so there is no compromise on financial principle.
Like any good investment, sustainable investing is about mitigating the downside and maximising the upside.