Sustainable investment is a rapidly growing field, with governments, regulators, capital markets, companies and consumers all playing a role in its development. It is particularly attractive to millennials, who represent 79.4 million people in the US. Studies have shown that 87% of high-net-worth millennials consider a company's ESG history when making investment decisions, and 90% are looking for ways to align their investments with their values. The idea behind sustainable investment is that companies should be better positioned to achieve good results in the future by adapting their businesses for the future.
This has driven the growth of data providers that focus on monitoring ESG factors by providing quantitative analyses based on qualitative ESG data sets. Improved data and analytics have paved the way for greater and better investment in ESG. The three main approaches to sustainable investing are environmental, social and governance (ESG). Environmental investments focus on renewable energy sources and reducing emissions, social investments focus on improving working conditions and corporate governance, while governance investments focus on corporate transparency and accountability.
Investors can use an ESG integration approach to evaluate a company's water use and toxic emissions based on financial factors to analyze any future risks or investment opportunities. An exclusionary investment approach can be used to exclude companies whose revenues come from tobacco, gambling or fossil fuels. Impact investing approaches can focus specifically on renewable energy companies that intend to generate a positive environmental impact. Women are much more likely than men to believe that there is a positive association between ESG factors and corporate financial performance.
A survey found that women were 47% more likely than men to believe this statement. Investor demand for ESG data and products has never been stronger. Stock ownership over time (1965-201) has seen debt values increase sevenfold in the last 40 years. Sales of public and corporate debt in major economies and emerging markets are driving this growth. China's bond market has grown by 13% per year for the past three years.
A portfolio composed entirely of stocks achieved an average return of 10.3%, the highest of all asset allocations, while a 100% bond portfolio achieved an average annual return of 5.3%. Bonds usually serve as a hedge against portfolio losses thanks to their historical correlation, usually negative, with stocks. Sustainable investment strategies have demonstrated a number of benefits for investors, from resilience in the face of market declines to superior performance in the long term. Investors should consider all three approaches when deciding which strategy works best for their portfolio.
