- Financial Planning
- Estate Planning
- Employer Services
- Our People
- About Us
- Contact Us
- Referral Form
14 Jul 21
The Unstoppable March of Sustainable Investment
Heard some great news today via Good With Money! The investment industry has reached a landmark “tipping point”, with almost half the world’s assets under management now pledged to meet climate change goals.
Responsible and Sustainable Investment (RI) has been around since the 1980s in the UK, but it is only over the last couple of years that it has really started to capture the public imagination. For a long time, RI was seen as a niche activity for ethical diehards who were prepared to sacrifice performance for their beliefs. That perception has been blown out of the water by strong returns in recent years. Not only have RI funds not underperformed, but there is growing evidence that their adoption of sustainable themes has led to significant outperformance of the overall market. The widest range of RI funds is to be found in the Global Equity sector where it can be seen that returns in recent years have been consistently robust.
So why is this the case? The contention was always that applying ethical screens restricted the investment universe by excluding potentially profitable companies and as a result limited the fund manager’s ability to generate competitive returns. This argument no longer applies as RI funds adopt different strategies that focus more on investing in industries of the future that will benefit from the demand for environmental solutions and socially beneficial services for an ageing population. At the same time, socially progressive companies avoid many of the risks associated with poor corporate practice. Put simply, good ethics is good business.
It is unsurprising, therefore, that assets in European RI funds rose more than 50% in 2020 to hit EUR 1.1 trillion, driven by significant inflows, repurposed assets, and rising financial markets.
RI Flows in 2020 were almost double those of 2019, at EUR 233 billion and 505 new RI funds were launched alongside the repurposing and rebranding of at least 253 conventional funds. This brings the total European sustainable funds universe to 3,196 funds.
But this may be small beer compared to what may happen in the future. PwC estimates that RI funds under management in Europe will account for over half of ALL investment funds in the region by 2025, a staggering 28.8% compound annual growth rate from 2019 to 2025[i].
This startling prediction is based on four key drivers – regulation, performance, investor demand and societal shifts. The Sustainable Finance Directive is just one of the recent legislative measures that are making RI considerations mandatory and this is having a profound impact. On the performance front, PwC come to the conclusion that the performance gap (outperformance) of RI funds vs conventional funds will only widen and this will further improve sentiment. Society is also changing – climate change, plastic pollution, biodiversity loss, inequality – these are all issues that have become part of the mainstream. As a result, investors are wanting to incorporate these issues into their investment strategy, and it is evident that this is no flash-in-the-pan, but a fundamental re-setting of the bar. It’s no wonder that PwC are calling it ‘The Growth Opportunity of the Century’, an opportunity that is open to all.
 Source: Morningstar, European Funds Landscape 2020
[i] Source: PwC, ‘The Growth Opportunity of the Century’.