SUSTAINABLE INVESTING

Earth Day and sustainable investing: from why to why not?

Today, global investors – ranging from large institutional investors to individual asset owners – are adopting a variety of sustainable investing strategies to achieve their long-term investment goals.

John McKinley
John McKinley
Director, BlackRock Sustainable Investing Team
April 2018

Capital at Risk: All financial investments involve an element of risk. Therefore, the value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed.

As millions of people assemble around the world to mark the 48th annual Earth Day on 22 April, we explore one of the most popular questions raised by investors today: is it possible to do well by doing good?

At BlackRock, we believe sustainability-related issues – ranging from board composition and human capital management to climate change – can and often do have real and quantifiable financial impacts. As Larry Fink recently wrote in his letter to CEOs around the world, “A company’s ability to manage environmental, social, and governance (ESG) matters demonstrates the leadership and good governance that is so essential to sustainable growth.”

Sustainable investing is not a niche or peripheral strategy – it’s about recognizing that the companies addressing humanity’s biggest challenges are often those that are well-positioned to grow.

Brian Deese, Global Head of Sustainable Investing at BlackRock

Simply put, we have found companies that effectively manage ESG factors that are material to the operation of their businesses are more likely to create long-term value than those that do not.

And it makes sense – companies with strong ESG practices tend to quickly adapt to changing environmental and social trends, use resources efficiently, have engaged (and, therefore, productive) employees, and face lower risks of regulatory fines or reputational damage.

It’s no longer a question of why investors should look to sustainability issues; it’s quickly becoming a question of why not.

Source: All information from The History of Earth Day, Earth Day Network, accessed 22 March 2018.

Sources: BlackRock Investment Institute and MSCI, July 2016. Notes: The above is a simulation that aims to minimize a hypothetical portfolio's carbon footprint. In constructing the hypothetical portfolio, BlackRock takes all companies in the MSCI World Index and MSCI emissions data and performs a standard mean variance optimization for each given tracking error. Emissions data are measured in metric tons per million U.S. dollars in total capital (total equity and debt). The forward-looking tracking error is an estimation that uses the BlackRock Fundamental Risk for Equity model. This does not represent an actual portfolio, fund managed by BlackRock or investable product, nor is it a recommendation to adopt any particular investment strategy.

Index Name Currency 01/04/2013-
31/03/2014
01/04/2014-
31/03/2015
01/04/2015-
31/03/2016
01/04/2016-
31/03/2017
01/04/2017-
31/03/2018
MSCI World Index USD 26.68 -0.87 6.64 22.4 -1.28

All data sourced from Bloomberg, correct as at 04 April 2018. Performance is based on US dollars and expressed on a total return basis with net income reinvested. The table shows a 5-year record of discrete annual returns.  Index performance is for illustrative purposes only and does not reflect any management fees, transaction costs or expenses. Past performance is not a reliable indicator of current or future performance and should not be the sole consideration when choosing an investment.

Greater carbon efficiency may signal operational excellence. It may also help protect companies from physical and regulatory risks. Recent environmental catastrophes such as the Fukushima nuclear disaster and the ‘Dieselgate’ fuel emissions scandal can serve as a drastic reminder of the dangers posed by unsustainable business practices.

Investing in a Sustainable Future

As we celebrate the 48th anniversary of Earth Day, it’s important for investors to recognise there are both risks and opportunities arising from with the transition to a low carbon economy as well as broader sustainability and social issues that can and often do impact portfolios.

It’s also important to realize there are more opportunities to take action, moving from the idea of sustainable investing to effective implementation.

At BlackRock, we are passionate about providing our clients with a clearer picture of the relationship between sustainability issues, risk and long-term financial performance, enabling more investors to act today.

Sustainable investing with iShares ETFs and BlackRock funds

For those wishing to invest sustainably, and willing to take on the associated risks, ETFs and actively managed investment funds may help provide efficient, transparent market access.

Capital at risk. All financial investments involve an element of risk.  Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

Investors can usually identify sustainable investment companies by their PRI Seal. The UN’s PRI (Principles for Responsible Investment) is an investor initiative in partnership with the UN Environment Programme Finance Initiative which encourages signatories to use responsible investment to enhance returns and better manage risks. It lays out six voluntary and aspirational investment principles that offer guidance and support to its international network of signatories into incorporating ESG issues into investment and ownership decisions. Signatories undertake to uphold six principles for integrating ESG factors into their analysis and investment practices and to demand that companies adhere to these principles.

View all iShares sustainable ETFs

BSF Sustainable Euro Bond Fund

BSF Impact World Equity Fund

BGF New Energy Fund

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any financial instrument or product or to adopt any investment strategy.