How to generate performance through responsible investments

Socially responsible investment is, more than ever, a major issue for French investors, as shown by the results of the People & Money survey conducted by BlackRock among more than 26,000 investors in 18 countries, including 514 people living in France.

The results underline that French investors are among the most convinced of the importance of social responsibility in the world. Among a list of 10 themes that may be important when making investment choices, 74% of French people ranked environmental sustainability in 1st place – a figure well above the European average (60%). 85% of investors surveyed said they consume responsibly, especially when it comes to food. Moreover, a very large majority of them (84%) believe that their financial investments should have a positive impact. 

Nevertheless, the study underlines that there is still a great deal of skepticism about sustainable investments: more than two-thirds of the French people surveyed (72%) said they do not know how sustainability can be measured, and many investors still believe that sustainable investment is made at the expense of returns. 

In fact, the opposite is true: so far this year, 72% of sustainable equity funds have placed in the top half of their Morningstar categories, and all 26 ESG funds have outperformed their benchmarks. In light of these numbers, the bias is fading and demand is increasing dramatically. In the second quarter of 2020 alone, investments in sustainable funds increased 72% to $71.1 billion globally. Europe accounted for the largest share of the flows. This development shows that generating returns while being responsible is common practice and that many investors and companies are moving towards these ESG funds.

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In one year, the number of funds meeting ESG criteria increased by 34%

The range of sustainable financial products is very broad, in order to respond to the growing appetite in this area as well as to the varied demand of investors in terms of return objectives and risk preferences. In terms of index management, many sustainable ETFs are based on the same benchmarks and apply different ESG criteria filters to exclude companies or activities that do not meet the preferences of end investors. Sustainable investments can also be allocated to projects with positive environmental and social impacts, such as the circular economy. Another option is to invest in specific thematic funds, such as renewable energy, biotechnology, healthcare or sustainable forestry.

In turbulent markets, companies and projects managed according to sustainable principles have proven to be particularly resilient.

Sustainable investment becomes the “new standard” in Europe

In the long term, regulation is also considered one of the most important drivers of sustainable and socially responsible investment. Based on the results of the Paris Climate Agreement of 2016 and the United Nations Agenda 2030, the European Union has adopted an action plan to finance sustainable growth as early as 2018.

In particular, it provides for direct capital flows towards sustainable investments, reduces the financial risks associated with climate change or natural disasters, and addresses environmental and social issues. This increases the transparency of investments and economic activities. The positive momentum that has developed over the last ten years will continue to be reinforced. In Europe, sustainable investment is becoming the “new standard”.

Sustainability becomes an even more decisive factor after the COVID-19 crisis

The trends observed by the BlackRock survey accelerated significantly following the COVID-19 pandemic. This is particularly true in terms of sustainability and social responsibility, which were already clearly visible before the crisis began. Indeed, in turbulent markets, companies and projects managed according to sustainable principles have proven to be particularly resilient. They have been more successful than others in generating stable returns over the long term. 

What explains this resilience? Research conducted by BlackRock has established a correlation between sustainability and traditional factors such as quality and low volatility. In addition to these traditional factors, a series of indicators related to sustainability, including employee job satisfaction, the quality of customer relationship management or the effectiveness of the board of directors, are also decisive. There is probably no more convincing argument for sustainable investments. If sustainability can encourage investment, it is also the way to approach one’s financial future with more optimism, being a lever for long-term serenity.

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(Featured image by dmncwndrlch via Pixabay)

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

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