Separating Fact from Fiction
Sustainable investing or investing in companies and organizations that prioritize sustainability such as the SDGs and/or environmental, social, and governance (ESG) factors, has gained increasing attention in recent years as investors seek to align their investment decisions with their values. However, even as sustainable investing gains popularity, there are many myths and misconceptions that continue to surround it – and I thinks it’s time to debunk some of those that I hear often. These myths can prevent investors from exploring sustainable investing and limit the potential benefits that sustainable investing can actually deliver.
Myth #1: Sustainable Investing Always Leads to Lower Returns
There is a persistent myth that investments that prioritize sustainability must come at the cost of financial returns. However, this myth is not supported by evidence. In fact, there are several examples of companies that have focused on sustainability and ESG factors have delivered strong financial performance over the long term. Moreover, research shows that companies with strong sustainability practices are typically more resilient and better positioned to weather economic shocks and disruptions.
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Investors can evaluate the financial performance of companies in the same way as they would evaluate a company before any other investment. For example, metrics like return on investment, cash flow, and debt levels can be used to evaluate the financial performance. But at the same time sustainable investors can have a clear set of sustainability metrics founded in values. By utilizing a robust set of financial and sustainability metrics, investors can make informed decisions and create a positive return.
Myth #2: Sustainable Investing is only for "Tree-huggers" & Hippies
I have heard this one so many times myself – from traditional investors with an old view of how to make a positive return on investments and also covered this in my book on sustainable investing; Investér bæredygtigt – og bliv fremtidens vinder I aktiemarkedet. This misconception is problematic, because it implies that investing in sustainability is a niche interest, rather than a fundamental component of long-term investment success. In reality, sustainability is an important aspect of risk management and value creation and is no longer a niche for investors. By incorporating sustainability factors into their investment strategies, investors can gain exposure to companies that are better positioned to deliver long-term value.
Moreover, when investors incorporate sustainability into their portfolio in a variety of ways, they might balancee their values with their financial goals – creating a higher level of personal satisfaction. Investment opportunities range from companies with strong sustainability profiles across all sectors to impact investments that have a more targeted focus on a particular environmental or social issue outside the regulated stock market.
Myth #3: Sustainable Investing Limits Investment Choices
Another widely believed myth that I just heard recently is that sustainable investing limits investors' options. However, sustainable investing can be applied across asset classes and investment styles. Moreover, there are a variety of sustainable investing strategies available to investors. For example, negative screening involves excluding companies based on specific sustainability criteria, such as sector, sin stocks, fossil fuels, ect., While positive screening involves selecting companies based on their sustainability performance - like the SDGs, ESG and CSR or all of them. Impact investing focuses on investing in companies (outside the stock market, such as startups) that have a specific social or environmental mission that match the investors values. And if you look at the data on listed companies delivered by Sustainify you’ll see that the limiting belief is just that – a belief. There are plenty of companies to choose from - but their level of reaching and working with sustainability might vary. You can choose to invest in a company that is in its early stages of the work with sustainability or one that is further along – that choice is yours.
The Benefits of Sustainable Investing
Sustainable investing is an important approach for investors to consider when making investment decisions. Debunking these myths is critical to increasing awareness and understanding of sustainable investing and it's potential benefits. Sustainable investing offers investors the opportunity to align their investment objectives with their values and potentially create a positive return over the long term. By incorporating sustainability factors into their investment strategies, investors have new areas to assess an investment by and compare it with others before investing.
Investors can find investments that align with their values, mitigate risk and still achieve a positive financial return. With a strategy that has either a holistic approach to sustainability or a more thematic strategy - like climate or genderbalance. The real question is why all investors aren’t doing sustainable investments when these myths are debunked.
Happy myth-busted investing!
Sustainify is an independent sustainability data provider that research, fact-check and verify companies and their sustainability claims, using AI/ML. We make sustainability data based on CSR, ESG and the SDGs so our customers can make better decisions. Powered by the need to make a positive change for people, planet, and profit and by being the best independent source of verified, fact-checked and researched sustainability data of listed companies and their sustainability performance. Sustainify is an early-stage start-up located in Copenhagen, Denmark. Find us on LinkedIn, Youtube, Instagram and Facebook. All rights reserved. 2023