The advantages of sustainable investing

Staci West 28/09/2023 in Sustainable investing

In this video, we hear from two fund managers, who specialise in sustainable investing, discussing the various advantages of sustainable investing.

Mike Appleby from Liontrust gives a quick introduction to sustainable investing before Deirdre Cooper, co-manager of the Ninety One Global Environment fund, outlines the benefits of sustainable investments and why it doesn’t mean sacrificing returns. Mike finishes the video by explaining why investors should have sustainable products in their investment portfolio.

What is sustainable investing?
Mike Appleby (MA): The aim of sustainable investing is to invest in companies that are going to make our economy more sustainable. So, they’re going to reduce the negative things that are happening in terms of impacts on the environment, and try and improve some of the social aspects in terms of people working, but also things like people’s health, etc. So, the aim is to try and invest in the solution providers, if you like, that are going to help us get to where we need to, in a more intelligent economy.

What are the benefits of sustainable investing?
Deirdre Cooper (DC): Well, I think the first benefit is it brings a different set of drivers to your investment portfolio. So, you know, I think we were all encouraged in general – your average investor – to look to be diversified, to own not just only one type of company or one type of asset, but to have a variety of different exposures because none of us really know where the future’s going to take us. So, our view is that this is a different investment process. What we do as a team is we really spend our time not only on the financial performance of companies, not only on next year’s cash flows and returns, but really finding companies that, over the long-term, are doing a great job across all their stakeholders. And that those portfolios have very different drivers to traditional portfolios, and that they’re worth having an allocation to.

Are you sacrificing returns for your ethics?
Deirdre Cooper (DC): So, our view is that it’s absolutely not a ‘give up’ – [but] that sustainable investing over the long-term should add value. You know, that over the very long-term, companies that are doing a really good job to manage their carbon footprint, to manage their exposure, their negative exposure to nature, taking biodiversity into account in their supply chains, that companies that are great places to work, right? That can recruit and retain people – that’s probably the ultimate competitive advantage; that all of those are things that the ‘best in class’ companies do. And that, over the long-term, those are the companies that will generate great performance.

Having said that, there will absolutely be times when, for various different reasons, other sectors outperform. At the moment, you have this very, very narrow driver of performance, which is really all about AI and what AI’s going to do to the world; that’s not an enormous sustainability theme either. But there will be other times, when those sustainability drivers, whether that’s decarbonisation, whether that’s health, whether that’s education, will really come to fruition. As I said, over the very long-term, it just seems to be common sense that if you do a good job across all of these areas, ultimately you will thrive. So, it’s not a ‘give up’, but it will be at certain points in time. So, we would never tell you that a sustainable portfolio will outperform on a next quarter, next year, next five years’ view. We do think on a 10-year view, you absolutely want to have some of these companies in your investment portfolio.

Why should I invest in sustainable funds?
MA: Well, what’s great about sustainable funds is you are looking at these long-term trends and companies that are able to provide the products and services we need to deliver those. So, for example, environmental technology to reduce our negative impacts on the environment, or low carbon renewable energy, or smart ways to improve our healthcare system and patient outcomes. All these kind of things, companies will grow as a result of demand for their services that we need. And if you look at the world, there isn’t a huge amount of growth out there. Expectations of how much the world will be growing over the next, say, 30 years, is lower than it has been in the last 30 years. So, this provides you a great opportunity set of companies that are going to grow in a world where there isn’t that much growth.

And also, just recently, some of these changes that I’ve been talking about to do with interest rates, have meant that some of these companies are looking very attractively valued now. And so, there’s a great opportunity to invest in sustainable investment strategies now and the outlook looks really, really good and compelling for the decade ahead. And also, at the same time, if you are interested in trying to move to a more sustainable economy in which we live, you are invested in and providing capital to companies that are going to help us achieve that. So, two great reasons to do it. I would probably add a third reason that many sustainable investment strategies will be engaging with companies that they’re invested in, to make them even better, to be able to reduce those negative impacts that they have. And so, that advocacy and that having a seat at the table, and challenging business to go further and do more and get better, is also something that I think many people find really useful.

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