Explaining and Exploring Sustainable Investment - Flipbook - Page 3
Anyone with a passing interest in investment will have heard the
terms sustainable, responsible, ethical, and environmental, social and
governance (ESG) more and more in recent years – just as issues like
climate change and plastic pollution increasingly dominate the news.
Many might still believe this kind of investing remains primarily
about avoiding certain types of companies and sectors and while
this approach is still prevalent, sustainable investment has become
far more nuanced. One of the main factors driving demand for
funds with a sustainable focus – and a key one for us at Liontrust –
is the growing realisation people do not need to sacrifice financial
returns to meet their values. Sustainable investing is no longer just
for those who want their investments to do ‘good’.
Our starting point is that it is possible to make profits while also
having a positive impact and we believe companies producing
goods and services that can help make the world cleaner, healthier
and safer have a competitive advantage that is often overlooked.
There is growing evidence to show companies that are ranked
better in terms of how they manage their interaction with the
environment and society, and how they are governed, generate
higher investment returns than those rated poorly on these measures.
Research published in 2015 – reviewing more than 2,000 pieces
of analytical work on the financial effect of ESG factors and
highlighted in the chart below – showed overwhelming proof of the
positive link between ESG and corporate financial performance.
This message is clearly getting through. Recent research conducted
on behalf of Liontrust revealed that three-quarters of investors now
say sustainability is important to them, and this extends across age
groups. Of these, just over half (51%) are investing sustainably (up
from 41% in December 2020), and when asked why, there was
a broad split between avoiding companies with harmful practices
75%
51%
of investors now say sustainability
of these are investing sustainably
is important to them
(up from 41% in December 2020)
and a desire to have a positive impact, showing how this part of
the investment industry continues to evolve.
Beyond this ‘performance with principles’, there are a number of
other factors driving growing demand for sustainable investment,
both in the UK and internationally. In the food and clothing
industries, for example, sustainability is becoming synonymous
with quality (and so it goes in investment). People increasingly
expect the companies they use to be socially responsible and this
is fundamentally changing businesses, from high street retailers to
industrials and even the giant commodity producers.
Basic financial sense is also pushing companies down the
sustainable path: as regulation and legislation increasingly penalise
polluters, businesses creating less toxic waste and those involved in
reduction and efficiency technologies should prosper. Meanwhile,
the political climate continues to change: with huge public attention
around the recent COP26 event in Glasgow, environmental and
social responsibility are very much regarded as mainstream issues
and policy is increasingly decided with sustainability in mind.
Better ESG management drives better corporate financial performance
70%
60%
62.3%
58.7%
Positive
Negative
55.1%
50%
40%
35.3%
30%
20%
10%
9.2%
4.3%
7.1%
5.1%
0%
Environmental
Social
Governance
E, S & G combinations
Source: Friede, Busche, Bassen. December 2015
Liontrust: Explaining and exploring sustainable investment - 3
