Why Sustainable Investment Has Gone Mainstream
Sustainable investment is moving from the fringes into the mainstream.
In 2016, $23 trillion was invested through sustainable strategies around the world (https://moneyweek.com/481615/sri-esg-how-ethical-and-sustainable-investing-went- mainstream/), and that figure will only grow.
An increasing number of investors, both professionals and ordinary people saving for retirement, are focusing on sustainable investments. Investments that bring environmental and social benefits, not just financial ones.
So why has sustainable investment gone mainstream?
Necessity
The most obvious reason is necessity.
The overwhelming majority of scientific evidence shows that humanity is ruining the environment.
We don’t have the power to destroy all life on Earth, but we do have the power to severely damage it.
And by doing so make the planet too hostile for our own survival.
As growing waves of international protest show (https://www.bbc.co.uk/news/science- environment-47865211), ordinary people are increasingly anxious about this problem.
They recognise that more sustainable ways of living are a necessity for human survival.
They’re therefore looking for more sustainable ways to invest so that their money can nurture nature rather than harming it.
There’s no point hoarding wealth if there’s not going to be a civilization to spend it in.
This pattern of behaviour is also driving demand for the products of more environmentally focused companies.
These companies provide vital resources such as solar panels, wind turbines, and ecologically safe detergent.
Regulation
Government responses are pushing more businesses to take environmental and social issues into account.
Carbon limits, pollution fines, and taxes on environmentally destructive behaviours all help to guide the hidden hand of the market by incentivising sustainable behaviour.
Companies with a focus on the sustainable tend to do better in these circumstances as they understand the importance of the associated targets and how to meet them.
Regulatory intervention is having its desired goal.
Scrutiny
Tied to that regulation is a higher degree of public scrutiny on the behaviour of companies.
In the age of social media, reports of polluting or other destructive behaviour can travel fast.
Campaigns can be easily launched to boycott companies that don’t do right by the environment.
The result is that companies are under increasing pressure from consumers to act in sustainable ways.
And more sophisticated consumers can more readily identify companies that work in line with their ethical standards.
This channels a growing stream of revenue towards companies whose behaviour is sustainable, while encouraging other companies to follow their example.
And that, in turn, makes sustainable investment both more practical and more attractive.
Examples Being Set
It helps that examples are being set by some of the most famous and wealthy people in the world.
Organisations such as the Bill and Melinda Gates Foundation are bringing philanthropy back to popular attention.
And their example is encouraging the rich and powerful to do more with their wealth than sit on it.
Though many of these are about giving away the money that’s been earned, rather than earning it in a sustainable way, they’re changing the way the super-rich think about their wealth, as well as setting an example for others high in the financial pyramid.
This has given both philanthropy and sustainable investment a boost in status.
It’s harder to avoid the negative connotations of unsustainable investment when the sustainable approach is gaining high profile support.
Long Term Thinking
On a more pragmatic level, some investors are moving to a more long-term approach.
Sustainability is all about considering the long view rather than focusing on the here and now.
Sustainable thinkers build companies and products that are designed to last, rather than to be sold for a profit and then abandoned.
These companies are causes rather than giant piggy banks, and they attract passionate people whose commitment adds to their ability to endure.
Some of them lasted for decades when the market was against them. Now it’s in their favour and they’re flourishing.
For investors serious about their long-term security, sustainable companies, therefore, offer good fundamental value.
Sophisticated Sustainable Investment
The different mindset of sustainable companies is reflected in their performance.
Research by Deutsche Bank (https://www.db.com/newsroom_news/2016/ghp/esg-and- financial-performance-aggregated-evidence-from-more-than-200-empirical-studies-en- 11363.htm) shows that companies with better sustainability policies tend to perform better financially.
Many suggestions have been made for why this pattern happens, including better long- term planning, adaptability, and a capacity to think outside the box.
But what can’t be disputed is the figures. Even before it became mainstream, environmental responsibility was profitable.
Somewhere along the line, there is a connection between sustainability and a more sophisticated approach to business, one that brings in more profits as well as making a better world.
Sustainability, which places environmental and social good above the value of profit, is ironically supporting the bottom line.
The market is working, if slowly, to become more sustainable.
And as word gets around, this approach is only going to get more embedded in the mainstream.
Paul Connolly
Paul Connolly has been a journalist for more than 20 years, as a reporter and editor for Argus Media, Reuters, The Times, Associated Newspapers and The Guardian. He has covered Islamic Finance for Reuters in the 1990s. Paul has since helped launch three newspapers, as well as reported from Tokyo, Los Angeles and Stockholm.
