Robeco Asset Management has just published good report about sustainability investing and its 9 common myths. Sustainability investing myths evolve around performance, idealism, screening, millennials, impact, data, trillions, portfolios and emerging markets related stories opinions and views.
Sustainability investing has been around for decades, but interest has only picked up big time in the past years. The growing interest and market size have also increased the amount of stories, opinions and views.
Many people – in the investment industry and in wider society – believe that sustainability investing is a niche form of investing or do not even know about it. Some think that its focus on social and environmental issues are not relevant for companies nor investors and leads to compromising returns. Others think that these are only issues and area, which are interest only to and discussed by millennials.
Even investment professionals subscribing to the principles of sustainability investing have their doubts about how useful it can be and whether it can really provide good returns. Some believe that using environmental, social and governance (ESG) analysis works only in equities. Many think that this cannot work for developing markets. Most common notion is still that integrating ESG considerations in the investment process means sacrificing performance and returns with ideals.
Sustainability investing is subject to more myths than any other investment style.
Where does these myths and beliefs in poor performance come from?
There are many sources. Some cases adopting sustainability requires new investments and costs money to implement it in the short-term. For example energy companies focus more on renewables means retooling, new infrastructure investments and skills. Sourcing products from responsible suppliers that pay their employees properly means costs to go up and so on. These cut the short-term returns.
In theory myths mean that companies that take sustainability seriously underperform. In fact, the reverse is usually true. Companies and investors using ESG principles have shown to enhance performance with ability to reduce risks by raising all standards, cutting out bad corporate behavior, adapting better to fast changes, improve energy efficiency, enabling their employees to be more productive and so on.
Four studies and many impact funds prove outperformance
In 2015 Oxford University and Arabesque Partners examined over 200 cases, in which they concluded that 80 % of the reviewed cases prudent sustainability practices provided positive influence on investment performance. in 2016 Deutsche Bank Asset and Wealth Management division research examined the universe of 2,250 studies since 1970 until 2014, which provided evidence that ESG frame made a positive contribution to better corporate financial performance in 62,6 % and only negative in 10 % of the cases.
In 2016 Harvard Business School study provided evidence that corporate sustainability feeds financial benefits through asset value rises and higher stock price. In 2017 research paper by three academics led by Tamas Barko analyzed a dataset of 660 companies, in which companies engaged to corporate sustainability and committed to ESG provided 2.7 % better stock returns and 7.5 % share price rises. Growing body of evidence concludes that sustainable companies will reap better rewards and more returns in the long-term.
Robeco’s core investment belief is that using ESG information leads to better-informed investment decisions and also benefits society. It is about positive and negative screening, active ownership, engagement, new business models, employee commitment and efficiency, and so on helps for results.
What is the truth about the other myths?
Robeco studies have founded out that older and middle aged people are more likely to invest in sustainability funds compared to the millennials. But Millenials are more progressive as consumers to demand the companies to be transparent, sustainable and responsible.
Famous “Triple Bottom Line” phrase was coined by middle-aged British businessman John Elkington, who stated that any enterprise needed to consider the three Ps – People, Planet and Profit – as equally important for long-term success. This is the core of Sustainability Investing with ESG frame and process.
Sustainability investing market is trillions of USD (22.9 trillion USD by GSIA members in 2016), which are invested and assets under management with SI focus. Sustainability impact is measured in detail and value-add returns are important to investors. Data capture and analysis include many sources and methods, which provide good facts about impact. Sustainability investing include different kinds of portfolios of equities and fixed income investments. Sustainability investing is very big and established in the West, but there are growth and even greater potential in the emerging markets in the future.
Robeco Asset Management and Robeco SAM have been one of the pioneers in sustainability investing, in which market they have been active and professional since early 1990s.