Evidence points to investment case for sustainable investing

Evidence points to investment case for sustainable investing

Sustainable investment funds are performing consistently well and, with a focus on long-term returns, the case for investing ethically is stronger than ever, an adviser has claimed.

Mark Williams, pensions and investments expert for Drewberry, said he had researched socially responsible investment and ethical funds for a client, and found the SRI funds he looked at had "generally outperformed the regular multi-asset funds from the same investment house".

While he acknowledged this was based on a "small universe of funds", global SRI funds more widely have shown similar strong performance, which he said challenged the pervasive myth that investing along one's principles meant accepting poorer performance.

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For example, according to Hargreaves Lansdown data, the Liontrust Sustainable Future Managed fund has returned 12.58 per cent over the past 12 months, compared with 11.71 per cent for the Investment Association Global sector average. 

Over five years, the fund's performance is exactly in line with the index, returning 67 per cent (as at 1 October, bid-to-bid, net income reinvested). 

Mr Williams commented: "The belief that ethical or sustainable investing means lower returns is being challenged, with many such funds performing better than their peers.

"There is a good argument that sustainable investing is looking to the future, and companies that have this foresight will benefit in the long-run."

Daniel Rudd, head of UK wholesale for HSBC Global Asset Management, said evidence suggested advisers were seeing a rise in interest among clients to invest ethically, but there were still barriers to making recommendations.

These barriers included poor understanding of environmental, social and governance issues, which was having a negative effect on investor demand for ESG-based investments,

Mr Rudd explained: "Demand for sustainable investments continues to grow. In fact, our research shows that IFAs see interest in social concerns, such as diversity, human rights, consumer protection, and animal welfare as the main reason for investor demand for investments explicitly incorporating ESG issues.

"However, a limited understanding of ESG issues and the potential long-term impact on investment portfolios is the single main reason impacting end investor demand for ESG products.

"Also, ESG implementation varies by investment manager and it can be difficult for IFAs and their clients to tell which products have more robust, sustainable investment approaches."

Research carried out by HSBC Global Asset Management also found only 13 per cent of advisers believed the current ratings available for ESG products were sufficient. Some 57 per cent said they would like to see more product ratings in order to be better equipped to advise on ESG investments.