What is sustainable investing?

Sustainable investing can be considered as falling under the umbrella of responsible wealth management – together with responsible investing, impact investing, and philanthropy. We consider investments to be sustainable when their strategies are firmly focused on leaders in the sustainability realm and companies with credible and concrete plans to significantly improve sustainability performance, and when they are aligned with an investor’s personal purpose and values.

There are many facets of sustainable investing. Sustainable describes an outcome – it is the consequence of an action that has measurable positive effects. From an investment perspective, those businesses and companies that score well in terms of ESG criteria can be called sustainable.

Sustainable investments usually involve companies that:

• Consider society and the environment;
• operate in a responsible and forward-thinking way;
• embrace the spirit of innovation;
• act in the best interests of people and the environment.

What is ESG?

ESG stands for Environmental, Social, and Governance. It is within these factors that many companies and investments can be evaluated for their sustainability.

• Environmental: How does a company affect the world physically – does it appropriately manage its waste, its effect on biodiversity, and its greenhouse gas emissions, among other things?
• Social: How does a company handle the social side of its operations – for example, does it consider its effect on communities throughout its entire supply chain, and put in place policies to ensure a just workplace for employees?
• Governance: How does a company deal with ownership and oversight – is it committed to fair, transparent corporate ownership and governance structures?

Why is sustainable investing relevant?

Sustainable investing goes one step further than responsible investing. To be considered sustainable, the company or fund in question not only demonstrates that it is addressing ESG responsibly and has strong risk mitigation in place, but it actively pursues positive change with its operations, and strives to improve the world and life for those in it. It aims to act in a way that can be healthily sustained from all perspectives.

What about hesitancy among those looking to add sustainable investments to their portfolio? Silvia Wegmann, Julius Baer’s Head of Sustainable Investment Solutions, has this to say: “Today, there are still many misconceptions about sustainable investing. Some people think that sustainable investing is still nascent, emotionally motivated, or intangible. However, in my view, the opposite is true, as sustainable companies are often more innovative. They are the ones that have the products in place to address the challenges ahead.”

Silvia notes: “You can do financially well while doing good. The clear predominant number of empirical studies show that long-term, investors can achieve a market-aligned or even better performance [with sustainable investments] than with so-called normal investments. This is because sound environmental, social and governance company practices are shown to be associated with lower cost of capital, better operational performance, more innovation, and hence positive long-term stock price returns.”

So what is next for the world of sustainable investing? Silvia says: “The development of a number of guidelines has helped sustainable finance to emerge from its niche status and take its place as a well-established investment style. These guidelines include the United Nations’ Principles for Responsible Investment (PRI), which offer signatories, such as asset owners, investment managers, and service providers, a means to align their investments with the United Nations’ 17 Sustainable Development Goals (SDGs).

“In addition, further transparency for investors was created through the European Union’s Taxonomy Regulation, which entered into force in July 2020 and established a list of environmentally sustainable economic activities, as well as through the European SFDR mentioned above. Following these guidelines means that investments commonly classified as sustainable will now be obliged to report on a clear sustainability objective.”

Our CEO, Philipp Rickenbacher, sees sustainability as a long-lasting catalyst of change in the finance world and states: “We truly strive to understand the world and to make meaningful and impactful decisions for the future, through sustainability. Finance can indeed change and sometimes even save the world.”

How can you start investing sustainably?

Silvia Wegmann also noted in an episode of our Wealth Insights podcast that the “key question” needed to start your sustainable investment journey is of a personal nature.

She explains: “What are my personal values and what do I personally understand when it comes to sustainable investments? What difference do I want to make on this planet, on the social side, and on the environmental side? It’s about your personal values and asking yourself, ‘How can I make this come true? Which is the right provider? Who has the offering that I need to cover my personal values and investment?’”

Meanwhile, our Head of Sustainability Yvonne Suter : “Investing sustainably makes good business sense. There are many benefits. First of all, you can achieve financial returns, actually market rate returns - meaning financial returns that are comparable to traditional investments within the same asset class. Then secondly, an important point is that by investing sustainably, you can achieve better long-term risk mitigation when considering ESG factors. And thirdly, you can align investments with what matters to you personally.

“I would say that the starting point is really to identify what matters to you as an investor, to identify your values, your ambitions and of course that can vary. It can be, for instance, protecting the ocean and restoring marine life or it can be providing better access for the poorest in the world to education or healthcare. And then the second question to be asked by an investor is, ‘What is the role I want to play when it comes to investing sustainably?’

“And there’s a whole range of investment solutions available these days. You can start with considering ESG factors in your investment decision, then you can go a step further and you can invest in so-called ESG leaders. These are the companies which perform better in terms of ESG factors compared to their peers in the same industry,” she concludes.

Equipped with a clear understanding of ESG factors, your own concept of a better future, and sufficient support in making these ambitions a reality, you can begin to invest sustainably.