Sustainable investing (also known as ESG investment) has become the new craze the investment world over the past two years. In our previous article, we covered what sustainable investing actually is. This time we want to discuss why you should vote with your dollars to support businesses that create a better world for all of us.
Sustainable Investing is booming. Assets in sustainable mutual funds and exchange-traded funds globally hit a record $1.2 trillion in the third quarter, up 19% from the second quarter, according to Morningstar. There should be a reasonable explanation for this, right?
Of course, the number one cause is we have become more conscious; we want to align our investments with our moral compass.
Capitalism is changing, and there is a broad recognition that business needs to do more than deliver profits, it needs to have more general-purpose as well. An excellent example of this is a recent Morgan Stanley survey which showed that up to 75% of millennials believe that their investment decisions can make an impact of climate change.
But climate change is not the only thing ESG standing for. While Environmental component tracks a range of issues including a company's carbon footprint, Social issues include product-safety problems and labour abuses in supply chains, and Governance assesses the quality of a company's management and whether the board maintains sufficient oversight.
But how do Sustainable Investments perform?
A big question commonly asked is what is the cost of investing ethically. By investing in a sustainable fund, will investors need to settle for lower returns or higher risk? The short answer is you can have your cake and eat it too. Sustainable Investing allows you to fulfil a purpose and have more money. Sustainable Investments are proven to have better returns and lower risks.
Morgan Stanley Institute for Sustainable Investing has compared more than 1,800 U.S. mutual funds and exchange-traded funds (ETFs) and found that sustainable equity funds outperformed their traditional peers by a median of 3.9% in the first six months of 2020. During the same period, sustainable taxable bond funds beat their non-ESG counterparts by a median of 2.3%.
An analysis completed in 2019, showed that the median performance for sustainable funds was in line with that of traditional funds between 2004-2018. The same study found that in turbulent times of 2008, 2009, 2015, and 2018 sustainable funds' downside deviation was significantly smaller than traditional funds', meaning that they showed less risk.
The kōura Difference
At kōura, we believe it's essential to have a meaningful impact on the world around us. All our Funds have ESG integrated into them.
First, off we don't invest in companies that are involved in the Tobacco, Gambling, Weapons, Adult Entertainment and Whaling industries (Negative Screening)
Next, we look at ratings given to companies by MSCI, ranging from AAA to CCC based on how they tackle ESG issues. The ratings identify which companies are leading and which are lagging in meeting the challenges of the future. Our Funds select only the companies with the highest ESG scores and exclude any below a BB rating (ESG Integration)
Finally, we have chosen Fund Managers that have a track record of actively voting for ESG factors such as climate change action and diversity on Boards (Active Ownership)
We select the best of the best for your KiwiSaver investment, providing you with the assurance that your money is invested in making a positive change.