The motivations for a sustainable investment

Sustainable Investment with impact transforms the way we invest, because, at the same time, we know we can make a difference.

This sustainable investment process, which has greened the map of the financial industry and especially the investor portfolio, includes topics related to ethics, transparency, the climate, disruptive trends and responsible, sustainable investment with a positive impact on society.

An MSCI investigation identified the three main motivations for investors to use the ESG investment.

On the one hand, investors believe that the integration of ESG criteria in decision making can improve the long-term results of their portfolio, increasing the probability of achieving the defined objectives.

They also believe that the inclusion of personal values, the personalization of the investment portfolio, is a marked trend in the construction of a financial plan. Therefore, the ESG factors are considered an essential tool to align decision-making with the personal values ​​of each investor.

And then there's the positive impact with sustainable investing, also known as impact investing. This practice demonstrates the willingness of investors to make a difference with their financial investments. The objective is to combine financial gains with environmental gains and social and community development.

This accelerated demand from investors is also causing changes in behavior in the advisors, asset managers, investment funds, ETF, pension funds and other institutional investors. From the outset, through a more ethical, sustainable and transparent investment process and then demanding greater corporate responsibility in the companies and businesses in which they invest.

As a result of this pressure, these managers today have a broader set of concerns, and are focused on issues such as: executive remuneration, the sustainability of natural and agricultural resources, issues of the government of the companies in which they invest, anti-corruption measures and climate change e carbon emissions.

Only in 2020, according to MSCI data, 120 ESG ETFs were launched, the vast majority of which were ETF deflations.

 

WEALTH TRANSFER BETWEEN GENERATIONS

This alignment of sustainability values ​​with the investment portfolio is even more evident in younger generations.

The next few years will be important for this evolution. We are facing the greatest transfer of wealth between generations. According to Cerulli, a research company, the estimated transfer of wealth in the US alone could amount to $68trn by 2042, from baby-boomers to their descendants.

The baby-boomers, a generation born between the mid-40s and the mid-1960s, had decades of growth and development that we had never seen before, creating wealth, but also raising the sustainability concerns of the planet.

Now, Millennials and the digital generation (generations between 25 and 40 years old) have wealth in their hands that they can use for their own benefit, but also with social, environmental and ethical motivations.

As Dave Nadig, CEO of ETF.com points out, these new generations “just think differently about their investments”.

Thus, when defining their strategy, investors are including essential factors in their investment process alongside the traditional financial factors:

• In environmental terms, investors and companies are looking for solutions in terms of carbon emissions, water management and “clean tech” opportunities;
• In the social aspect, they look at the privacy and security of personal data, and the relationships between the different communities;
• In the matter of corporate governance, ethics, salary issues and transparency at the fiscal level stand out.

 

ESG AS RISK, OBJECTIVE AND INNOVATION FACTOR

The truth is that, by understanding the ESG also as a risk, and integrating it into our investment process, we can improve the performance of the portfolio. But this improvement, of course, is only possible with the motivations of the companies themselves. They know that by better managing environmental risks, ethical values ​​and the social and community impact, they are more likely to succeed and grow when compared to companies that do not follow the same motivations or that are not accelerating this process.

This is a continuous and irreversible process and a transversal concept to all sectors of society.

And not. It's not just marketing, it's not just the financial industry to find new ways of marketing financial products. But there is a long way to go to definitely instill this spirit and not be deceived. And innovation also emerges as one of the key factors in this path and to accelerate the process towards the sustainable development goals of the United Nations 2030.

GOALS OF A SUSTAINABLE INVESTMENT

According to a research by Ark Invest, this innovation process will speed up economic convergence:

• Digital currencies can make finance more inclusive;
• Reusable rockets and the launch of new satellites will allow internet access to become cheap almost anywhere on Earth;
• The reduction in the cost of production of food as a result of the introduction of artificial intelligence and genetic alteration;
• ​Electric mobility system that enables gradual reductions in travel costs.

But of course, there are risks and issues in the process. The most polluting or weapons industries are not going to disappear, for example. However, even in these industries, the inclusion of ESG factors allows investors to broaden their investment options based on the ESG quality rating.

The growth and motivations of investors demonstrate that the ESG does not live at the expense of loss of profitability or the media frenzy. There is a foundation and a concrete alignment between the various participants for a more transparent, ethical and impactful investment process, which provides sustained growth and adjusted to all inherent risks.

Ethics, the environment and social responsibility make all the difference for our future. Invest with impact!