Sustainability Investing
Benefits of investing in sustainability
Eco-investments have long had a bad reputation. But the reality is different: Companies that follow ESG guidelines are addressing the exciting mega topics of the future. For investors, this often opens up above-average return opportunities.
Sustainable investments are in demand.
A rethinking is currently taking place in numerous companies. Ecological, Social, and Ethical standards are gaining relevance and are being issued as the main parameters based on which investment decisions are made. In recent years, climate and sustainability have led to a paradigm shift in society, which companies can no longer ignore. Only those who adapt are perceived with a positive image and are an investment opportunity for international investors.
Investors pay attention to sustainability.
However, shifting to a more environmentally friendly and green economy comes with significant challenges. The four premises guiding the change are circular, efficient, inclusive, and clean. In practice, however, the resulting goals, such as less waste and dematerialization, better utilisation of existing resources, and production processes that are as emission-free as possible, place significant financial burdens on many companies and tie up resources. But the investments are worthwhile: Those who face up to the challenges now and work on the mega topics of the future also create a sound basis for above-average growth in the long term. Because with sustainable investments, companies are investing in progress and the future.
The transformation process is also enjoyable for investors and offers lucrative opportunities for several reasons. Compared with traditional investments, ESG investments score above all on essential criteria such as return and risk. One example is the Morningstar Europe Sustainability Index, which achieved an average annual gain of 6.6 percent in the five years to the end of 2020. The Europe Large-Mid Cap Index climbed by less than five percent.
ESG investments outperform
Sustainable funds and ETFs on global equities have also primarily performed well in the recent past. Areas that have received policy support, such as alternative energy, have shown significant outperformance relative to the overall market. For example, the iShares Global Clean and Renewable EnergyETF significantly outperformed major world equity barometers such as the MSCI World and even exceeded the broad market by a factor of ten in 2020.
In addition to higher performance, ESG investments reduce the portfolio’s susceptibility to fluctuation in turbulent market phases. At the end of 2018 and in the first quarter of 2020, when the Corona crisis triggered a crash in the stock markets, sustainability-focused indices lost less ground than the broad market. However, investors need to look carefully when choosing. There are now several hundred funds and ETFs that focus on sustainability.
ESG - in demand now and the future:
- ESG investments are capital-intensive.
- Sustainable investments offer an attractive risk-reward ratio
- Wide range of ESG investments
