Sustainable investing was once viewed as a trade-off between value and “values.” Yet today, it’s something investors can no longer afford to ignore. What has changed? More granular data, more sophisticated analysis and shifting societal understanding of sustainability as well as growing awareness that certain factors — often characterized as environmental, social and governance, or ESG — can be tied to a company’s long-term growth potential.
BlackRock is increasing its focus on sustainability across the board — from our investment processes to the investment solutions we offer. There is growing recognition that the field presents a largely untapped source of information that can potentially identify investment risks and generate excess returns. At the same time, the data are imperfect, scoring methodologies differ, and investors need to gain greater clarity on the pitfalls of this emerging field.
We discuss three key themes driving transformation in sustainable investing: the aim to create sustainable portfolios and strategies that do not compromise financial returns; the effort to use innovative research to go beyond headline ESG scores; and the integration of sustainability-related issues into traditional investment strategies. Our work fuels our conviction that the future of investing is sustainable.
- Sustainable investing is no longer a niche area; it is going mainstream. Assets in dedicated sustainable investing strategies around the world have grown at a rapid clip in recent years. We are seeing a surge in clients’ interest in incorporating sustainability-related insights into their investments. This demand looks poised to accelerate — driven by societal and demographic changes, increased regulation and government focus, and greater investment conviction.
- Enhanced data and insights make it possible to create sustainable portfolios without compromising financial goals. Our research, which relies on backtested data, shows how ESG-focused indexes have matched or exceeded returns of their standard counterparts, with comparable volatility. We find ESG has much in common with existing quality metrics such as strong balance sheets, suggesting ESG-friendly portfolios could be more resilient in downturns.
- Driving innovation in sustainable investing requires going beneath the headlines. ESG data have evolved, but are still incomplete. New technologies and methodologies have allowed us to make great strides in improving sustainability data. This includes techniques to estimate missing data, and determine their materiality to investment performance.
- Integration of sustainability considerations into investment processes is on the rise — and for good reason. Incorporating relevant sustainability insights can provide a more holistic view of the risks and opportunities associated with a given investment. There is no one-size-fits-all approach, but the opportunity to improve investment processes by integrating material sustainability considerations is real and growing.
Read more on BlackRock’s webpage