Guide to sustainable investment
What do we mean by sustainable & responsible investment (SRI)? We believe that there are three key elements encompassed within SRI.
- Real investment potential – we firmly believe that SRI is a sensible approach from a pure investment perspective. Companies operating in a sustainable and responsible manner are better placed to succeed over the long term.
- Positive impact – there are many companies which are a real force for good. They help to improve quality of life, reduce environmental impact and manage their operations responsibly and with integrity. It may be a firm that makes technologies that lower carbon emissions, one that improves people’s lives through medical innovation, or one that helps provide clean water. Companies with products or services that provide these solutions to the challenge of developing more sustainability are likely to grow more than the market and where these positive attributes are overlooked by the market can be good investments.
- Avoiding negatives – SRI means not investing in companies whose activities damage the environment or have a negative social impact. As well as avoiding such firms, we believe that actively encouraging companies to change and improve their practices is an important part of SRI. This process is called ‘engagement’.
Different types of SRI
- Undesirable business activities screened out e.g Tobacco, Arms, Animal Testing
- Remainder of fund is managed in a conventional way
- Looking for companies benefiting from sustainability trends
- Either several themes in one fund or focused on a single theme e.g. Climate Change, Water, Environmental Technology, Health Care
- May also exclude certain ethical areas
Why invest in SRI?
The case for SRI is a strong one. From an ethical perspective the benefits are obvious; as such a strategy allows investors to invest for their financial futures in a manner aligned with their own beliefs and values. Increasingly though, SRI strategies make sense from a more pragmatic perspective too. Why? Because a company operating in a sustainable manner is more likely to be a better long-term investment than one that isn’t. In a recent survey by Accenture, 93% of 1,000 CEOs said they saw sustainability as important to the future success of their business.¹
Key factors influencing the way business is done and the prospects for companies operating more sustainably and responsibly include:
- Consumer pressure – with individuals increasingly aware of the impact of their decisions, demand for sustainable products is increasing. Companies capable of providing sustainable goods, produced in an ethical manner are well placed.
- Financial sense – Regulations and legislation increase costs for polluting companies, thereby providing significant impetus for efficiency improvements. Lower polluting companies and those providing pollution reduction and efficiency technologies should continue to prosper.
- Political climate and regulation – the environment and related social impacts are now widely regarded as mainstream political issues with policy decisions increasingly made with sustainability in mind. This political will has a marked effect on regulation, as seen in the banking sector, energy policy and emissions regulation, which in turn affects competitive landscape for businesses. Regulation influences company behaviour and typically favours more sustainable or resilient companies.
For further information about Sustainable and Responsible Investments click here to download The Alliance Trust Guide to Sustainable Future Funds.
Investments can go down as well as up. You may get back less than you originally invested.
Funds which undertake ethical screening to meet their investment aims are unable to invest in certain sectors and companies. Our exclusion of some areas of the market (on ESG grounds) may result in periods of under-performance with respect to relevant benchmarks. For instance if tobacco stocks were enjoying extremely strong returns we would not be able to participate in their gains.
Before you choose a fund, make sure you understand its aims and risks. You should ensure you have read the Fund Factsheets and Key Investor Information Document (KIID) beforehand. These are available on our website.
Alliance Trust does not give advice. You need to ensure you understand the risks and commitments before investing. If you are unsure you should consult a Financial Adviser before investing.