Investing is no longer just about making a profit; it’s also about having a purpose and making a difference. Today, a growing group of investors are putting their money to work with a view of the bigger picture: building a better and brighter future for generations to come.

This is sustainable investing, where the focus is on generating a positive environmental or social outcome without sacrificing financial returns. This form of asset management has been gathering momentum since the global financial crisis of 2008 and 2009.

In the past decade, it has moved from the margins to the mainstream – to the extent that many investors now argue sustainable investing is likely to produce higher and more sustainable returns than regular investing.

“Sustainability isn’t just a box to check for our investment processes, it’s vital to our existence as an organisation with a great purpose,” says Ms Alice Tan, Head of Maybank Private Singapore and Products and Investment Solutions.

“Maybank’s 2020 Sustainability Plan details our strategy for balancing business needs with delivering social and environmental benefits, aligning to our mission of ‘Humanising Financial Services’.”

Ms Tan also adds that sustainable investing isn’t just about jumping on a trend for short-term gain, it works in the longer term as well, as more funding becomes available to invest in companies that meet this criteria. In addition, for companies that focus on making a difference, such investments can lower their working capital.

The Global Impact Investing Network (GIIN), estimates that this niche area of investing is already a US$502 billion industry.  Many investment firms expect it to become a US$1 trillion industry by 2020.

Two global agreements have contributed to this momentum: the 17 Sustainable Development Goals adopted by the United Nations in 2015 and the Paris Climate Accord signed in 2016 to combat climate change.

As sustainable investing becomes the new normal, investors are being required to acquire a more sophisticated understanding of the nuances between different funds and labelling. 

Here’s a quick primer:

• Sustainable investing consists of the “ESG” elements
• ESG stands for environmental, social and governance. The list of ESG factors continues to grow and includes energy consumption, climate change, human rights, community engagement, conflicts of interest and shareholder rights
• Socially Responsible Investing (SRI) takes that one step further by actively eliminating or selecting investments according to specific ethical guidelines (such as religion, personal values or political beliefs)
• Other terms used by the industry include social entrepreneurship, responsible investing, impact investing and thematic investing – although the latter describes any kind of investing that selects equities according to their ability to tap into a macro theme, such as urbanisation, digitisation, water shortages or the like

Increased interest in the sustainability space relates not only to a renewed social consciousness globally but also to the reality that social impact pays. Traditional fears that such funds carried higher risk overall, were less liquid and tougher to exit have proven false. Innovation in clean energy solutions, improved healthcare and infrastructure to address the needs of the world’s growing population are driving high returns. According to research by EY, they’re outperforming the market.

But challenges remain. Quantifying social impact is currently subjective with no single model yet recognised as the industry standard for measurement. To move sustainable investing further into the mainstream, the World Economic Forum stresses the need for standardisation across the industry.

Fortunately, the majority of investors are showing a willingness to enter the space at speed even before impact measurement approaches maturity.

“In this current market climate, financial ROI isn’t a good enough measure of a business,” adds Ms Tan. “There also needs to be a commitment to sustainability and the environment, demonstrated and verified in some way. Having a purpose while investing should be part of an organisation’s forward-thinking approach in their strategic planning.”

Key take-outs:

• Sustainable investing is gaining popularity rapidly, from both institutional and personal investors, which has expanded the number and nature of funds available
• While past performance is no guarantee of future returns, sustainable investing has been shown to perform well and is no longer considered a financial compromise in order to have social impact
• The asset class is still relatively immature, however, and progress needs to be made on standardising approaches for measuring impact 

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