Improving the world with your savings – it might initially sound aspirational but this has become one of the core principles of modern-day investors. Responsible investment (RI) funds select companies which demonstrate the best environmental, social and governance (ESG) practices. We believe that these may offer investors the best of both worlds: seeking attractive financial returns and a possibility to allocate money to causes they care about.
ESG involves assessing a company’s environmental, social and governance practices by screening them against a set of pre-defined criteria. In other words, companies need to fulfil requirements that are in line with certain standards. Environmental aspects can include a firm’s carbon footprint, energy use and waste management. They may also take the company’s compliance with environmental regulations into account. The social component focuses on issues that are related to a company’s culture and the relationship it maintains with its employees, suppliers and customers. Among others, the list of criteria can comprise diversity, labour standards and data protection. Governance factors look at the firm’s management team and the way it runs the business. Shareholder rights, executive compensation as well as bribery and corruption are only some of the items on the agenda of responsible investors in that regard.
Incorporating moral beliefs into investment decisions is all well and good, but can investors actually generate positive returns if they solely focus on companies that live up to responsible investment standards? In our opinion very much so. Morningstar data reveal that 58.8% of sustainable funds that have been around for the past 10 years outperformed their average traditional peers across seven categories over a 10-year period to 2019 Source: Morningstar Research. Data as of 31 December 2019.
Sustainable investing is one of the founding pillars of Amundi, one of Europe’s largest investors. The company firmly believes that the positive effects generated by including environmental, social and governance factors in their investment process today ‘will be a source of sustainable performance’ into the future.
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