By Arman Kazemi
March 12, 2015
A large majority of investors believe sustainability and profitability go hand in hand. The challenge is now to translate this belief into investment action, according to a recent poll.
Morgan Stanley’s Sustainable Signals report released late last month found 71 per cent of individual investors are interested in sustainable investing. And at 72 per cent, even more of them thought that better environmental, social and governance practices yield higher profits and make for better long-term investments.
But these perceptions haven’t gone all the way in shifting market behaviour, as 54 per cent of individual investors maintained that as far as investments go, sustainability and financial gains are a trade off.
According to the report, “demonstrating to individual investors that it is possible to achieve positive impact and profit and that sustainability can be a potential advantage, will be critical for the future of sustainable investing.”
The momentum shift the industry needs will likely come from millenial and female investors, both groups that are playing increasing important roles in the financial sector.
Compared to their older counterparts, millenials “are on the leading edge” of incorporating sustainability into their investment practices. With 84 per cent of them claiming an interest in sustainable investing, millenials are almost twice as likely to invest based on “specific social or environmental outcomes,” the report claims.
At the same time, female investors – who occupy more than 50 per cent of all U.S. management and professional positions and control $11.2 trillion in investable assets – are more likely to factor sustainability into investment decisions.
The report found that 40 per cent of female investors were likely to seek a balance between rate of return and environmental impact when making investment decisions, compared to 23 per cent among men. And 76 per cent of women believed environmental, social and governance issues are important factors in investing, compared to 60 per cent of males.
Of course, these changes in investor perspectives haven’t happened overnight. As previously reported, financial institutions are scrambling to catch up with shifts in market appetites for more sustainable investment products. According to a Bloomberg report, clean energy investments were up 16 per cent last year, and in Canada they were up 26 per cent to $9 billion dollars.
As a result, banks and other financial services have looked to capitalize on these trends through sustainability-targeted investment options like green bonds, which saw a global increase of over 300 per cent in 2014, surging from zero to $1.4 billion in Canada alone.
It seems that the major barrier between rate of return and sustainable investing is not a question of feasibility but of culture. As organizations like Morgan Stanley try to show, that choice between profitability and sustainability is not mutually exclusive.
“The trajectory for sustainable investing continues to point upward,” says Audrey Choi, Managing Director and CEO of the Institute for Sustainable Investing.
“What used to be a bifurcated decision – one between investing to make money and giving to do good – is increasingly becoming a blended conversation as investors look to harness the power of the capital markets as a force for positive impact.”
Photo Credit: Zach Ancell