CAN AN EYE TO ESG ENHANCE LONG-TERM PORTFOLIO PERFORMANCE?

OBSERVATIONS | MARCH 2018

Responsible investing, call it ESG, has come a long way since Al Gore sharply raised the world's awareness about climate change in his 2006 documentary - An inconvenient truth.


While investing with an eye on environmental concerns remains integral (the ‘E’), responsible investing increasingly incorporates a company’s social behaviour (the ‘S’) and its governance (the ‘G’). Adding momentum to this style is the realisation that there is a growing cohort of investors led by millennials (which we used to call Generation Y) that is increasingly likely to make their investment decisions by taking into account such environmental, social and governance issues. Indeed, USD 30 trillion of capital is expected to come their way to invest (inherited from baby boomers) over the next couple of decades. 

As we highlight in this article, a number of trends are emerging within ESG. Firstly, it is no longer an ‘all-or-nothing’ space, with investors increasingly seeking to progressively shift their portfolios onto a more ‘responsible’ footing, rather than making a potentially more complicated across-the-board leap. Secondly, a growing body of research is showing that an eye to ESG investing doesn’t negatively impact client returns and instead may enhance long-term portfolio performance. 

Ultimately, wealth managers will increasingly need to be able to offer value-based investment options to their clients. And ensure they can align their investments with their values (both ethical and political) in a way that also delivers competitive returns.