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Sustainable Investing | A value-based approach

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By Capital Partners Markets and Investments

Socially responsible investments (SRI) are slowly adjusting the way we live, including through how investments are assessed and engaged. A shift in the operation and societal expectations of organisations are now forcing the hand of many businesses to act and integrate socially responsible practices. According to Wealth Adviser John Ryan, demand is increasing.

We asked John for his perspective on sustainable investing, specifically if he believes this shift represents the new normal, his prediction for the future of SRI, and realistic performance expectations.

Consumer appetite

Supporting clients to make their financial dreams a reality, John’s exposure to investment conversations plays an invaluable role in spotlighting consumer preferences within the SRI space.

“I think we are on the cusp of a major shift towards sustainable investing. I have seen an increase in desire for investment products that have greater ethical, sustainability and governance filters or screens, we refer to these as ESG investing products. While it is still not currently the default investment strategy, I suspect this could change at some point in the future.”

Future predictions

Misconceptions towards sustainable investing are a put-off for many investors. According to John, while barriers to sustainable investing exist, investor appetite will continue to rise.

“I see the ESG space expanding as more investors prioritise social and environmental good as something that goes hand in hand with promoting sustainable returns in the long term. As more investors demand sustainable options, companies will need to adjust their behaviour and reporting practices to make sure they meet demands. I think this will eventually lead to ESG values as standard, creating a new normal in investing.

This road to the normalisation of ESG investing could see fossil fuel-heavy businesses change their practices to avoid being left out in the cold. We will continue to see investors make decisions about where they place their capital that involves more than just a percentage-based return-on-investment calculation”.

ESG performance

According to John, ESG performance can be as reliable as a standard Capital Partners’ portfolio.

“ESG long-term performance is expected to be reliable, allowing the same planning benefits as you have with a standard portfolio. If we look at shorter periods you will see ESG outperform when a sector such as technology outperforms the market. Likewise, as we have seen more recently, you could see ESG underperform when the energy sector outperforms the market while technology underperforms.

With an ESG portfolio, you are taking a position in the market based on the kind of world you would like to live in, now and in the future. This reduces the focus on diversification and returns slightly, allowing the short-term differences in performance to play out, knowing that there is a greater prize at stake that cannot be measured in percentage terms”.

Many businesses are charting paths to more sustainable practices, and the demand for sustainable options from consumers, investors or otherwise is unmistakable. We know that purchasing power drives change and that no matter how small if we choose the incrementally more sustainable option, we move in the right direction. While challenges remain in the drive towards ESG, John’s insight helps to convey that appetite and momentum are promising indicators of future preferences. If you want to align your investment decisions with your values, we encourage you to start a conversation with your adviser about how to start a journey towards sustainable investing.

The information provided on this site is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different and you should seek advice from a financial planner who can consider if these strategies and products are right for you.

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