Socially responsible investing: Nonbelievers need to stick to data


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Investing in a sustainable matter does work – just look at the numbers.

What will it take to convince large institutional investors to invest responsibly or sustainably? 

In October, a survey by Schroders of 500 pension funds, endowments, foundations and sovereign wealth funds revealed 20% of them checked the box for: ‘I do not believe in sustainable investments.’ That went up to 29% among Latin American investors. 

What exactly do they not believe? That sustainable investments exist? Because about $22.89 trillion in assets were being professionally managed under responsible investment strategies in 2016, according to the latest survey from the Global Sustainable Investment Alliance.

Or are 20% of asset owners saying they do not believe in investing sustainably because they do not care about people or the environment? 

That seems unlikely. 

So, one is left to assume that this 20% just doesn’t believe investing sustainably has a monetary benefit. Indeed, 44% of the investors surveyed by Schroders said they had performance concerns. 

Positive association

But where are they getting their information? There are many empirical studies that show a positive link between performance and environmental, social and governance (ESG) factors. In 2015, for example, Deutsche Asset Management and the University of Hamburg looked at 2,200 studies since 1970, the majority of which showed a positive association between ESG factors and corporate financial performance. 

Another study that year by Arabesque Asset Management and the University of Oxford also found that companies with robust sustainability practices demonstrate “better operational performance, which ultimately translates into cashflows.” 

These are just two of many studies that show a positive correlation between performance and sustainability. 

Even if one does not trust studies, one could simply look at the indices. The S&P500 is up 14.35% this year as of October 26, while the S&P500 Environmental & Socially Responsible Index is up 15.04%. It may be only a small outperformance, but it is outperformance. 

Having concerns about future performance in general is of course valid, given investors’ responsibility to preserve and grow assets, but it seems clear there is a disconnect between what these institutional investors ‘believe’ and what appears to be true. Investing based on beliefs seems somewhat contrary to the role of being a fiduciary of assets. 

It is time this 20% approached socially responsible investing (SRI) as they approach the rest of their portfolios – using data.