By Samuel Philipos from Benevolence Financial Group, Finance and Mortgage Brokerage in Australia.
Did you know that half of ethical and sustainable funds beat the MSCI World index? Moral money is not just a win for the people and the planet, but your returns as well.
- Environmental, Social and Governance (ESG) investment momentum is a leading indicator of where investment funds are focusing on delivering sustainable returns
- Ethically borrowing to invest is as equally important as where and what to invest in
- Investing ethically and sustainably is both the right and better investment decision
Regardless of where you look, Environmental, Social and Governance (ESG) investing has proven more resilient and outperformed normal indexes. An index usually tracks the largest corporations to measure average overall performance. In the US, from January to April, ESG companies have outdone the standard S&P index by 0.6 per cent. In Asia, there have been similar results with ESG leaders outperforming standard indexes, according to the MCSI’s emerging markets index. BlackRock, in a new report, notes that open-ended funds that score in the top 10 per cent on Morningstar’s sustainability ratings significantly outperformed their low-scoring peers on the MSCI index.
Two Reasons ESG Investment Is A Sustainable Wealth Creation Strategy
ESG investment is a sustainable wealth creation strategy due to two primary reasons.
- ESG funds have been attracting significantly more interest. In the first quarter of 2020, BlackRock has indicated that 41 per cent more funds have been invested in global sustainable funds.
- Compliance with corporate governance and supply chain management requirements mean these funds receive high ESG ratings. This has led to companies reviewing employee practices, logistics and supply chains changing them when required. Wealth can be sustainably created through the type of asset invested in or through borrowing to invest.
Financing investment strategy
Borrowing to invest can also be done through sustainable lenders that support enabling finance but avoid using profit margins to fund fossil fuel industries. There is a powerful two-fold effect when consumers choose to borrow from ethically and sustainably committed lenders: they support banks that are doing the right thing and hold accountable banks that are damaging our communities and environment.
Types of investments
Whether wealth creation investment is made under debt back investments (savings account, bonds), equity investments (property and shares) or alternative investments (crypto, hybrids or commodities), there are sustainable options.
These options include the types of banks available, ETF’s, fund managers or brokers to ensure that purpose-driven organisations are supported. Every decision made to move away from harmful organisations is not only the right thing to do but the smarter thing to do.
We need to protect our planet and care for communities with decisions based on reciprocity and not on self-interest. The pandemic has shown us a glimpse of what may happen under climate change outcomes. It has never been more urgent to act now and use our wallets to do the talking.