By Tom Sedoric and Casey Snyder

Sustainable investing is not a new concept. The idea of building a portfolio with purpose and accumulating investment wealth under the guise of an ESG investing strategy has lit the financial industry ablaze, but it’s not the movement of tomorrow; it’s the movement of today. It’s not a buzzword any longer. It’s a sound strategy and is paying consistent dividends from various vantage points. ESG (environmental, social, and governance) investing has been positioned with investors as a means of putting their investment monies to good use and spearheading a plan to ensure that the future of business is better suited to place value on the bottom line while simultaneously figuring in the betterment of the surrounding social and economic environment. 

In short, investors are placing their money in a sustainable investment strategy that aligns with their core beliefs. Compounding dollars solely to bolster bottom-line earnings is no longer good enough. There’s thought put into every dollar changing hands. 

Today we’ll suggest five reasons you should explore sustainable investing opportunities as a working piece of your investment strategy. 

Benefits of Sustainable Investing

  1. ESG investments are growing at a rapid pace. Studies show that roughly two-thirds of institutional investors report that ESG investing will become an industry standard by 2023 (Natixis). You could argue that it’s pretty much there right now when you consider that, over the past two years, assets managed with ESG considerations increased by 42% within the U.S. alone—up from $12 trillion to $17.1 trillion. That’s healthy growth with no signs of slowing down anytime soon.
  2. Sustainable investing is ripe with options. In 2004, there were 115 ESG Focus Funds (Morgan Stanley) which ballooned to nearly 400 offerings in 2020, which is creeping up on fourfold growth in only 16 years. Another suggestion that sustainable investing is becoming more and more commonplace is that the number of ESG funds grew nearly 30% between 2019 and 2020 alone (CNBC).
  3. Sustainable investing returns equal or better gains than traditional investment portfolios (Kiplinger). For quite some time, a significant knock on the ESG investment wave has been that investing in your values goes hand in hand with compromised returns. That’s no longer the case, as studies continue to show that sustainable investing opportunities offer similar or greater returns than their traditional counterparts. In fact, a Morningstar study that came out in 2019 showed that 53% of investors had chosen the ESG investment route because of motivation stemming from exceptional performance gains. In that same study, 32% of financial advisors claimed that sustainable investing-focused portfolios yielded above market-rate returns over 2018 figures.
  4. Sustainable investing has become a safer choice. In 2021, Forbes reported that investors were actively looking to ESG-based investment opportunities to help mitigate risk in a volatile financial environment. This was due in part to the idea that companies working to establish ESG guidelines as a working piece of their operative mission were thought to be strategically figuring in risk and risk management to the equation, and thus, were a safer investment opportunity. 70% of advisors in the report (which borrowed from a Nuveen study) said that “...superior risk management is the top reason why their high-net-worth clients invest in RI (responsible investments).”
  5. ESG investments will force the hand of businesses to make smarter, more environmentally sustainable choices moving forward. Sustainable investing practices will drive the almighty dollar and economics surrounding it as we grow into a more environmentally, socially, and governmentally focused future. If a company isn’t keeping its eyes on ESG guidelines, it will likely serve to the detriment of its bottom line. 79% of all investors have indicated that they want their investment dollars to advance environmental sustainability, 86% of all investors believe that the country is in need of social change and that they believe that consumer and investor pressure will bring about change faster than waiting for the next election cycles, and 33% of all investors initiated a discussion with their financial advisor focused on a corporation practicing bad governance practices (Nuveen). These are telling statistics forecasting the future stronghold of sustainable investing solutions.

In parting, we’ll offer up the fact that, as of March 1 of this year, $1 of every $3 invested in the financial marketplace is being allocated to a sustainable investing opportunity (Kiplinger). Investors are letting their money do the talking. Are you ready to have a conversation about your portfolio and what sustainable investment opportunities are available to you? We’re here to help

 

Investing involves risk and you may incur a profit or loss regardless of the strategy selected. Sustainable/Socially Responsible Investing (SRI) considers qualitative environmental, social, and corporate governance, also known as ESG criteria, which may be subjective in nature. There are additional risks associated with Sustainable/Socially Responsible Investing (SRI), including limited diversification and the potential for increased volatility. There is no guarantee that SRI products or strategies will produce returns similar to traditional investments. Because SRI criteria exclude certain securities/products for non-financial reasons, utilizing an SRI investment strategy may result in investment returns that may be lower or higher than if decisions were based solely on investment considerations. Investors should consult their investment professional prior to making an investment decision.