Sustainability is often considered an environmental buzzword, but it’s a critical concept for investing and finance. According to experts like Alessandro Lardi, Timothy Tsui, and Cyrus Taraporevala, sustainable investments are not only the responsible thing to do, but they often reap better dividends than investments with a short-term focus.
Environmental, social, and governance investments are gaining traction in 2024 due to climate change and the COVID-19 pandemic. These investments intersect financial growth and environmental responsibility, offering a profitable compromise that benefits today’s investors and the next generation. Financial experts explain why sustainable investments are gaining traction on a global scale and how investors are embracing sustainability across their portfolios.
The Importance of Sustainable Investments, According to Experts Like Alessandro Lardi
Environmental stewardship and economic growth have traditionally been at odds. However, investors increasingly find that sustainability-minded investments come with benefits that make ESG investing a true win-win.
Short-sighted investment approaches may net short-term gains but rarely lead to long-term financial growth. Time is an essential factor for investment growth, which is why more investors are embracing sustainable investments designed to grow even in challenging times. In fact, global ESG fund assets grew 12% to a total of $2.5 trillion in 2022.
Ted Eliopoulos, vice chairman at Morgan Stanley Investment Management, has seen this trend firsthand. “The majority of investors surveyed believe that companies with ESG-aligned practices can be better long-term investments but continue to need better reporting and data to evaluate holdings on those criteria,” he says.
Alessandro Lardi, the founding partner of Swisspath, agrees. “As long as the data supports sustainable investments and the returns make sense, more investors will embrace this way of investing — and that’s a good thing for the economy and environment,” he says.
Risk Mitigation
Investing in sustainable practices mitigates risks associated with environmental changes, social issues, and governance factors. Organizations that ignore these factors could face regulatory penalties, reputational damage, or operational disruptions by refusing to plan for the future.
“ESG issues have become much more important for us as long-term investors,” Cyrus Taraporevala, president and CEO of State Street Global Advisors, shared in an interview with Harvard Business Review. “We seek to analyze material issues such as climate risk, board quality, or cybersecurity in terms of how they impact financial value in a positive or a negative way. That’s the integrative approach we are increasingly taking for all of our investments.”
Social and Environmental Responsibility
Sustainable investments reflect a commitment to responsibility, showing concern for the impact of a business beyond its shareholders but to the community and society at large. BlackRock’s Larry Fink once said, “Climate change has become a defining factor in companies’ long-term prospects. I believe we are on the edge of a fundamental reshaping of finance. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”
“Sustainable investment practices can also fight against climate change and support the transition to a low-carbon economy,” Alessandro Lardi adds. “More investors are seeking opportunities that align with their values, and sustainable investments give them a way to combine financial objectives with the desire to make a positive difference.”
Three Ways Investors Embrace Sustainability
Sustainability may be a buzzword, but in the realm of finance, investors are embracing several approaches to make sustainability a tangible part of their investment strategies.
Timothy Tsui, a managing partner of Arbutus Capital Partners in Hong Kong, has seen an uptick in sustainable energy investments. “We are seeing more sustainable energy going into places like Bangladesh and Thailand, where growth is fast and large-scale, as these countries look to address the problems of generating high carbon emissions,” he told AsianInvestor. These investments offer a sustainable solution for high carbon emissions in growing countries, setting them up for long-term success — and offering opportunities for global investors.
Alessandro Lardi adds, “Investors are turning their sights abroad to support environmentally friendly initiatives around the globe. This provides a win-win investment scenario by supplying funds to much-needed projects while giving investors opportunities for ESG returns.”
Sustainable investing was once considered an add-on to complement existing investment strategies. However, modern investors are increasingly taking a sustainability-first approach to investing. “ESG needs to be at the core of your decision-making process,” Lardi says. “Not only is it beneficial for future generations, but it also gives investors a solid framework for risk mitigation in a changing world.”
With sustainability as the standard, more investors are partnering with sustainability-minded companies to quickly expand their portfolios. For example, businesses like the kombucha brand Happy Culture are drawing more investors because of their environmentally conscious approach to business. Renowned for its digestive health benefits, the brand’s kombucha provides a lower-sugar, probiotic-packed alternative to sugary beverages, contributing to better health in its community. Happy Culture also aligns with several United Nations Sustainable Development Goals. The woman-founded and managed brand enacted policies to reduce its carbon emissions, minimize waste, and support recycling programs in South Africa. The company even has plans to embrace solar energy and reduce its reliance on nonrenewables. Investing in companies like Happy Culture allows investors like Alessandro Lardi to diversify, support growing businesses, and build sustainability-first portfolios.
According to Morgan Stanley, 80% of asset owners follow sustainable investing. However, Alessandro Lardi believes sustainable investments will only gain popularity if the numbers make sense to investors. “Financial viability is a must,” he says. “Investors are savvy and will embrace sustainability if they see quantitative data proving its potential for tangible, long-term returns. It’s not just about investing responsibly; it’s about demonstrating that sustainable investments can be financially rewarding, too.”
Morgan Stanley’s Ted Eliopoulos also argues that investment managers have a responsibility to provide this information to their clients. “Investment managers can play a critical role supporting clients as they implement tools to assess how investments align with their sustainability goals,” he says.
Sustainable Investments: Balancing Profit and the Planet
The trend toward sustainable investing is reshaping the finance landscape on a global scale. By adopting sustainable investment practices, investors play a crucial role in responsible business practices. This approach aligns with the values of forward-thinking investors like Alessandro Lardi and ensures a brighter future for the planet.
