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Weekly Short
12 April, 2024
It’s been a difficult few years for sustainable investing. Despite recent data indicating in 2023 that sustainable funds returned to the trend of outperforming their peers after a couple of years of less than stellar returns, the world of ESG-driven investment continues to be caught in the crosshairs of the culture wars. Criticisms of greenwashing, over-reach, investor scepticism about corporate sustainability claims, complexity and doubts over the merits of a one-size-fits-all approach to disclosures have all conspired to make ESG investing a target for climate sceptics and Republican lawmakers on the one hand and sustainability activists on the other who.
Despite that, a recent survey found that nearly 80% of global investors have integrated sustainable investment policies into their strategies, up from 20% five years ago, with almost all the others saying they either had a “loosely defined ESG policy” or had plans to implement a policy. This shift underscores a simple fact: despite the challenges, ESG considerations are no longer optional but increasingly essential. When asked to identify the top three reasons for integrating sustainability factors into their investment decision-making processes, investors highlighted regulatory requirements (39%), improved financial performance (36%), and stakeholder influence or pressure (34%).
The survey highlighted several barriers to implementing sustainable investment policies, including a lack of clarity on how to integrate information into decision making and – crucially – inconsistency or incomparability of ESG data. As regulators around the world take steps to address this final point, ensuring investee companies are reporting in consistent and comparable ways, this last hurdle should fall away. And with most investors saying that they did not believe that the value of ESG-driven decisions was fully factored into equity prices, it would seem there is considerable upside ahead for sustainable investments. Perhaps in the end this is what will turn the tide on anti-ESG sentiment: better information leading to better decisions leading, in the end, to better returns.
By Flora Gicquel