INSIGHTS

Sustainability is about more than just environmental impacts

Along with considering the environmental impact a company’s operations have, sustainable investing also incorporates a company’s societal impact and how it is governed.

A company that has a detrimental impact on its environment is more likely to have an unsustainable business model. The same goes for one that has a negative impact on society, or that has poor governance practices.

Assessing a company’s sustainability can help align investments to an investor’s set of values. In addition, it can help drive positive change by signaling to companies what areas stakeholders see as important, and where certain issues may need to be addressed.

Furthermore, it’s important for investors to be aware that a company with an unsustainable business model presents additional risks over the long-term.

One of the most common ways of incorporating sustainability into an investment process is via the integration of environmental, social and governance factors. This is termed ‘ESG’ investing.

ESG investing is more than simply screening and excluding companies engaged in certain business areas, such as gambling, fossil fuels or tobacco. It includes a range of non-financial measures to help identify sustainable and non-sustainable businesses, and those taking active steps to improve the sustainability of their businesses.

Socially responsible investing is here to stay

Socially responsible investing has gained in prominence in recent years and is anticipated to become increasingly important in the years ahead. COVID-19 has acted as a further boost, with more and more investors recognising the importance of thinking about the bigger picture, rather than only pursuing returns.

Gone are the days where the only focus for a company was on maximising shareholder value – a company must now be aware of the impacts of its activities on all stakeholders, be they shareholders, customers, employees, suppliers, or society at large. Companies must maintain their social license to operate, and controversies have real effects on company valuations.

Sustainability scores

To help clients invest sustainably, we have developed sustainability scores. These scores provide valuable information for socially responsible investors, weighing up the key issues and highlighting issues for investors to consider in an easy to understand manner.

As an example, when considering a company’s emissions, we look at how emissions intensive a company’s activities are, what they are doing to lower their footprint, if they have measurable reduction targets in place, and whether the company is aware of the risks and opportunities climate change may bring.