achieving competitive edge
achieving competitive edge
Sustainable investment, just like sustainable management, has many flavours, and can mean different things to different people. The basic notion is that companies that are able to manage all their risks (i.e. including sustainability risks) have a competitive edge against their peers and therefore a higher chance of sustained business success in terms of sales and profitability. By identifying those sustainable companies, and investing in their shares (or bonds), it is expected to achieve a higher financial return - both in terms of share price development and dividends. There are two 3 investment philosophies commonly associated with sustainable investment:
A research process that is capable to identify true (not perceived, or reported) sustainable value and management capabilities allows investors to achieve outstanding investment returns. . The performance graph of SolAbility's SolA 50 Index of Korean equities (Koreas 50 most sustainable listed companies) is based on sustainable performance, complete neglecting of any corporate financial indicators. Nevertheless, the Index has outperformed the market indices each year since 2007, both in upwards and downward trends, sometimes at significant margins.
However, sustainable investment (all of the three categories above) is no automatic guarantee to higher investment returns - it can, if applied proberly, lead to higher returns. Metastudies of SRI/ESG funds show mostly neutral return compared to conventional funds, with broker research suggesting slightly higher positive performance compared to academic research.
Like everything else in this world, the outcome depends on the quality. In te case of sustainable invstment, the oucome (return) depends on a) the qulity of the research and b) application of the research in the investment; both of which are key to capitalise on the superior performance of sustainably managed companies and projects. The reason many SRI/ESG funds are unable to capitalise on sustainability trends include
Sustainable investment does not necessarily yield higher investment returns outperforming the market - but it can.
With increasing influence and business impact of key sustainability trends - climate change, energy and raw material scarcity, water constraints, aging populations, etc. the importance of sustainable business management capabilities is set to increase further in the future, and thus the opportunities and returns of sustainable investment.
Conventional vs. sustainable management: what differentiates sustainable companies from less sustainable companies
Sustainable invstment research to identify superior invstment return
Conventional ESG/SRI research methodologies and their limitations: a new approach is required: ESG 2.0