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Sustainability is the
future of investing

For years, investors had to choose between “ethical” values and performance. But now, sustainable investing is paying off.

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.
ESG Investment Statements. This information should not be relied upon as research, investment advice, or a recommendation regarding any products, strategies, or any security in particular. This is for illustrative and informational purposes and is subject to change. It has not been approved by any regulatory authority or securities regulator. The environmental, social and governance (“ESG”) considerations discussed herein may affect an investment team’s decision to invest in certain companies or industries from time to time. Results may differ from portfolios that do not apply similar ESG considerations to their investment process.

 


Until recently environmental or sustainable investing inevitably meant sacrificing returns. But recent studies of ESG investments - those that considered environmental, social and governance criteria - prove this is no longer the case.1 Research by BlackRock shows that ESG indices have in the past been on par with - or even outperformed - traditional indices with comparable volatility (more information on the topics covered in this article is available here).

Evidence shows sustainability has a positive effect on a company’s long-term development. One reason is it parallels with other quality metrics, such as a strong balance sheet, which suggests that ESG-friendly companies may be more resilient in downturns.

There are many reasons why sustainable investing now makes sense for the risk and return-focused investor.

The public – especially the increasing number of young people moving into leadership and decision-making positions – are attaching greater importance to how companies address their responsibilities. Regulation is also becoming stricter, benefitting companies that already take their environmental or social responsibilities seriously.

The way in which ESG investments and indices work has also changed. The investment universe is no longer narrowed to companies in a handful of industries based purely on exclusion filters, and as a consequence, investments have become much more diverse. The question for investors looking to the future is therefore no longer “Why invest sustainably?”, but “Why not?”

Of course, outstanding problems with ESG investing remain: not all companies are analysed, there are no uniform standards, and there is very little comparability or historical data. But these shortcomings can also be opportunities.

BlackRock believes that while aggregated ESG scores contain important information, there are other sources of meaningful data. In response, we have created our own comprehensive database that combines ESG data and fills in the gaps. By employing new technologies and innovative methods, we will achieve a new dimension of analytical depth. 

Sustainability is the future of investing and can no longer be ignored. But ESG scores alone are often not enough. Investors stand to benefit substantially from innovative approaches that deliver enhanced insights into sustainable investing.

1 E.g. Corporate Sustainability: First Evidence on Materiality. Harvard Business School 2015

Mirjam Staub-Bisang
Senior Advisor to BlackRock’s Sustainable Investing Business
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