(GreenBiz) Enthusiasm for sustainable investing is surging. Already, more than $8.7 trillion (PDF) of investment capital is managed using environmental, social and governance (ESG) factors in U.S. markets alone, according to the U.S. SIF Foundation. That’s a 184 percent increase since 2010. This pot of money increasingly includes investments in green infrastructure, renewable energy, affordable housing and more, as well as investments that more holistically integrate broad ESG factors.
However, amid this hype, a certain amount of confusion , doubt and outright skepticism endures. WRI’s new paper, “Navigating the Sustainable Investment Landscape,” is based on interviews with 115 investment professionals — including asset owners with $1.26 trillion under management — and found that the prospects for sustainable investing are strong and overcoming key roadblocks will help the market reach a tipping point.
Here, four of the most common myths we encountered in the research are debunked. 1. Sustainable investing sacrifices returns
One of the most frequent arguments against sustainable investing is that it won’t yield as much money as investing in fossil fuel assets, high-carbon companies or weapons manufacturers. Critics say it limits the investment universe, curbing potential returns from the highest-performing assets.
But the data tells a different story. When evaluated across multiple funds and time periods, sustainable investing exhibits a largely neutral — and oftentimes positive — impact on financial performance. A recent Morgan Stanley study (PDF) of more than 10,000 mutual funds found that sustainable equity funds usually had equal or higher median returns and equal or lower volatility than traditional funds. Oxford University and Arabesque Partners analyzed 41 studies and found a positive relationship between sustainability and financial performance of stock prices for 80 percent of studies reviewed.
Many asset managers, such as Aperio Group , Generation Investment Management and Brown Advisory Sustainable Growth Fund , already are achieving outsized returns through sustainable investments. These investors are integrating sustainability data —such as carbon emissions, energy efficiency, executive compensation and board diversity — into fundamental analyses as a means of revealing unseen risks and opportunities. Some managers such as Impax Asset Management even focus on placing capital with companies that […]