Sustainable investing has gained a lot of popularity in recent years. People want to see their values and morals reflected in their investment portfolios.
Typically, these values can be expressed under the headings of Environmental, Social and Governance (ESG). Also, there is growing evidence that ESG investing outperforms the market in the long term (RIAA Report).
The most recent Responsible Investment Association Australasia report states that $1.281b of assets are now managed under an ESG framework.
What is ESG?
The philosophy behind sustainable investing is to ensure that short term profits do not override long term considerations. This includes non-financial factors, such as environmental impact, stakeholder assessment and future generations.
It has been an increasing trend over the past decade by fund managers to create ESG assets. Also, demand for these assets has been increasing, with many of our clients requesting portfolios that take these factors into consideration.
For instance, sustainable investment would see tobacco, slave labour and businesses that pollute the environment prohibited from portfolios. This expectation from investors has led to a 42% increase in ESG investments from 2018 to 2020. This is expected to continue.
COVID-19 impacts and looking forward
There is increasing evidence that ESG assets are performing well over the long term. During 2020 and into 2021, sustainable investing faced some challenges due to COVID-19 though.
Despite that, many large ESG funds have outperformed the market and received record inflows during the pandemic. 96% of US investors expect their firm to prioritise ESG decision making in their portfolios. With investors more buoyant about economic recovery with COVID-19 over, ESG is definitely becoming part of the future.
Having sustainably aligned morals and values should not prevent our clients from achieving quality returns. The performance of these ESG funds show that this is not a problem. The contention that ESG assets underperform the market should be considered a myth, as it is not supported by quantifiable market returns (see Bloomberg’s latest report here).
If you would like to consider if your asset portfolio can reflect your morals and values, please contact us on 03 9190 8964 or at [email protected]
The team at Endorphin Wealth are passionate about helping people achieve their life goals with great financial planning. We are not licensed or owned by big banks and financial institutions. So the advice and wealth management we provide is always in our client’s best interests. We have the advantage of being able to access a range of products from different providers that can be tailored to our client’s goals. We have offices located in Sydney and Melbourne, where you can find a financial advisor that is suitable for you.
