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How sustainability is redefining the way we invest

Sustainability is now a key metric for investors. People want to make a positive impact with their money whilst also building their own nest egg. The best-in-class approach is a type of ESG selection that favors the companies with the highest non-financial ratings within their sector of activity, without favoring or excluding a sector from the stock market index.

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The life insurance company OneLife, which offers Socially Responsible Investment (SRI) funds, put the subject of sustainability at the forefront of its Investment Forum held on October 17 in Brussels. Anthony Lorrain, Chief Investment Officer, discusses this issue  with several fund companies at the conference he hosted.

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What is the point of SRI funds?

Ethical investments were first developed on exclusion criteria aimed at excluding companies that do not meet Environmental, Social and Governance (ESG) criteria, such as activities related to alcohol, tobacco or weapons.

The methods have since evolved. The Best-in-class approach is a type of ESG selection that favors the companies with the highest non-financial ratings within their sector of activity, without favoring or excluding a sector from the stock market index used as a starting point.

More recently we have seen the emergence of Impact investing, which has taken sustainability a step further by integrating a consideration of contribution, with the question: What positive impact will my investment have?

This investment strategy seeks to generate synergies between social, environmental and societal impact on the one hand, and neutral or positive financial return on the other. Companies can be assessed on what they are doing explicitly to address climate and social issues and the magnitude and materiality of their impact.

Are sustainability and financial performance compatible?

SRI is based on the conviction that taking ESG factors into account ensures the financial performance of the sums invested in the medium and long term, taking into account a better understanding of potential risks and disputes and better management, which together ultimately have a real impact on the performance of a company and therefore of investment funds.

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Finally, the past has shown us that socially responsible investment is resilient in a context of financial and economic crisis.

Are there any limitations to the model?

To date, many questions can be raised with conflicting answers to some of them. For example, is it normal to be able to offer an SRI fund with exposure to the oil sector that is deemed to be responsible for environmental damage? Transparency and harmonization of European labels seem essential in order to make this type of asset more accessible to end investors.

SRI – a growing sector

The number of investment fund managers that integrate SRI and ESG factors into their investment criteria is now booming. This subject is of course closely followed by the banking and insurance sectors.

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(Featured image by Ales Nesetril via Unsplash)

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First published in PAPERJAM, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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Andrew Ross is a features writer whose stories are centered on emerging economies and fast-growing companies. His articles often look at trade policies and practices, geopolitics, mining and commodities, as well as the exciting world of technology. He also covers industries that have piqued the interest of the stock market, such as cryptocurrency and cannabis. He is a certified gadget enthusiast.

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