Issues such as climate change, pollution and renewable energy are increasingly becoming headline news making sustainable investing at the forefront of many investor’s minds. These investors want to be sure that their money is being put to use in a way which aligns with their personal values.
Whilst now very much in the mainstream, sustainable investing is still a relatively young practice. Quintet’s Head of Sustainability, James Purcell, answers seven of the most commonly asked questions about sustainable investing – including some tips for those who are just starting out.
Sustainable investing is an investment approach. It posits that taking account of relevant and material factors across the environment, society, and governance will improve the investment decision making process. You can also deploy sustainable investing to ensure your lifestyle and values are reflected in your investments and even use your investments to help create a better future for people and the planet.
Research supports the argument that it can be. Over 1000 studies have been made by academics across the world and the ratio of positive findings to negative findings is approximately 8:1. With the economy and world changing around us, there is evidence that sustainable investing will grow in importance. Last year, sustainable equity funds impressively beat their traditional competition. According to Morningstar, 42% of sustainable funds came in the top quartile of their peer-group with just 6% lagging in the bottom quartile.
Sustainable investing is important for two reasons. Firstly, at Quintet, we believe it is essential to take account of relevant and material sustainability factors when investing – it’s your toolkit to better your risk and identify underappreciated sources of growth. Second, our investments reflect who we are, and our investments have real-world consequences. Sustainable investing is important as it can align our portfolios – and their consequences – with our, and our family’s values. You can read more about the importance of sustainable investments by clicking here.
One of the challenges with sustainable investing is the industry’s tendency to use a huge variety of terminology and a lot of acronyms. A recent paper by the Institute of International Finance found more than 50 terms were being used, often interchangeably. At Quintet we believe this approach is unhelpful. It separates you from your investments and objectives, making a topic which should be personal and engaging rather cold and academic. The important questions are what do you think the future economy will look like? And, what are your interests, passions, and values? Combining these can help you invest for potential growth sustainably.
We’re at risk of entering the feared “jargon jungle” here! That said, many people use responsible investing to denote good, fundamental standards. It ensures that egregious activities such as cluster munitions are not funded, and guarantees that dialogue takes place between research teams and fund managers on environmental, social, and governance topics. Sustainable investing goes beyond implementing fundamental standards, it sees sustainability as a toolkit that can be deployed in a bid to achieve superior investment returns and align your portfolio to your interests.
At its core, sustainable investing is about ensuring that all relevant stakeholders – from employees, to regulators, to the environment and communities in which a business operates - are respected. When this occurs, it is believed a business typically benefits from faster growth, better pricing, and finds solutions that create “wins-wins”. Sustainable investing is at its best when it takes a principle based approach, considering investments with a fresh perspective and additional information in order to make better investment decisions, not when it’s implemented as a series of rules or check-boxes.
The best tip is to picture what you think the future will look like, or even what you want it to look like. At Quintet, we would be confident that you would agree with us - the dominant technologies and services of the future are going to be sustainable: far less carbon intensive, more flexible and agile business models, with greater diversity and empowerment for employees through technologies such as remote working. The stock and bond markets are a reflection of the real-economy, so consider what the future looks like and invest accordingly.
Another great approach is to imagine you are the CEO of a large company and to think about how you would like it to be run in order to be as profitable as possible. Would you want to have very productive employees? Suppliers who collaborate with your innovations? Great business ideas being generated by your diverse staff? Do your products and services help people find solutions for major problems? Or… is your business beset by regulatory and accounting issues? Are your employees unhealthy and unhappy? And, is your business unwanted by the communities in which it operates? When you consider on a single company basis what would be a great organisation to work for and with, it becomes easy to extend the analysis to your entire portfolio and embrace sustainable investing.
Quintet Private Bank (Europe) S.A., founded in 1949, is headquartered in Luxembourg and operates in 50 cities across Europe, staffed by 2,000 professionals. Widely recognized as a private banking leader, Quintet serves wealthy individuals and their families, as well as a broad range of institutional and professional clients, including family offices, foundations and external asset managers.
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