The US SIF’s (The forum for Sustainable and Responsible Investment) recent annual report spells optimism for the coming years in sustainability investing. The forum released their annual trends report based on research and surveys conducted by the US SIF foundation. As of 2016, $8.72 trillion was invested in sustainable, responsible and impact (SRI) investments – a significant 33% increase compared to SRI investments made in 2014.
On an even more optimistic note, Forbes expressed in their recent opinion article covering SIF’s latest report, that SRI approach or conscious investing does not come at a cost of returns. This is because companies engage in ESG, sustainable, responsible practices and continuous improvement through the strength of high-quality management and also tend to have better performing stocks.
The launch of the Dow Jones Sustainability Indices back in 1999 gave us a platform to evaluate ESG or sustainability performance of the largest companies through stock performance. ESG reflects a company’s fundamental success through the quality of corporate governance, management structure, operational improvements, employee satisfaction and relations. As companies strive for such greater transparency through GRI sustainability reporting, conducting and disclosing materiality assessments, greater shareholder value is created as an ongoing process.
Actively improving and setting goals on ESG or sustainability metrics for a company’s material issues have resulted in significant cost savings. Forbes quoted that Pepsi’s over-a-decade-long water conservation effort globally has led to over $80 M in cost savings through tightening operational efficiency throughout their supply chain and this has directly reflected in their higher stock performance. Further, this has had a positive social effect in water-stressed regions with a goal to provide clean water access to 25 million people across the world in such areas.
US SIF revealed that at the start of 2016, sustainable, responsible and impact (SRI) investments accounted for 22% of the total $40.3 trillion tracked under asset management by Cerulli Associates. This is an overwhelming 14-fold increase from when US SIF first started measuring the size of SRI markets in 1995. This runs at a compound annual growth rate of 13.25%.
Morgan Stanley has touted SRI investing as a form of investing for the future, reporting a particular interest among millennials. In their investor pulse poll of High Net Worth investors, 82% of the millennials expressed greater interest in SRI investing. Clean energy and health & well-being sectors were the top winners for anticipated returns according to these high net worth investors. Millennials surveyed were also more inclined to believe that 7 out of the 9 investment areas surveyed will have market-rate financial returns in the coming years for pursuing positive social or environmental gains. Sustainable investing is smart investing!