Sustainability, ESG, and the Future of Investing: A Review


Posted in: Best of, Drivers of Value, Economics, Equity Investments, Future States, Performance Measurement and Evaluation, Philosophy, Portfolio Management, Risk Management, Standards, Ethics and Regulation (SER)

Mark ‘Entrepreneurial Investor’On the 10th anniversary, we’ve compiled a retrospective of our coverage of the most important topics in finance and investing over the past decade.

The past 10 years have seen a sharp uptick in sustainability in investment management and in the adoption of environmental, social and governance (ESG) factors in financial analysis.

Since its launch in 2011. enterprising investor has tracked this trend and provided investment professionals with important insights into the developments shaping investment sustainability.

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ESG investing has existed in some form or the other over the past 75 years, yet it is only in the last decade that it has reached a critical mass.

It reflects a confluence of growth factors. Chief among them is increased demand from end investors – including institutional asset owners and retail investors – for investment products and solutions that take ESG risks and opportunities into account. Investors have also expressed a desire for investments that align with certain environmental or social goals – so-called non-economic objectives. Governments and regulators have also pressured the investment industry to contribute towards broader sustainability-oriented policy goals.

Together, these factors have led to the rapid growth of ESG-related financial products. from the following chart Generation Investment Management Sustainability Trends Report 2021 Shows this pattern:

Trends in Sustainability-Related Finance, 2015-2020

Chart showing trends in sustainability related finance, 2015-2020
Source: CB Insights; Bloomberg; BNEF; Reuters; FTSE Russell; generation

ESG coverage on enterprising investor largely reflects these developments. Since then EI’Launched in the autumn of 2011, a total of 220 ESG-related articles have been published, three quarters of them from 2016. These posts address all manner of ESG issues, including the relationship between accounting and disclosure standards, the fiduciary duty debate, and more. ESG and investment performance, thematic investments, water quality and human rights issues, gender lens investing, and more.

ESG-focused articles from enterprising investor, by year

Chart showing ESG-focused articles on the entrepreneurial investor, by year
Source: enterprising investor

What follows is a hand-picked selection of the most relevant insights and thought-provoking commentary on all things ESG in this period. We showcase key sustainability issues through the perspectives of both ESG supporters and critics. The collection provides a fascinating window into the ESG debate and orients readers towards the emerging sustainability trend and its implications for the future of investing.

A framework for driving ESG financial discipline

Kevin Prall, CFA, outlines a structural foundation for analyzing how ESG affects intangible asset value creation, and discusses how a focus on intangible value creation can bring greater financial discipline to ESG investments.

ESG Matters: Global Trends and Changes

Aline Reichenberg Gustafsson, CFA, and Barbara Stewart, CFA, discuss sustainability and the growing importance of women in the investment ecosystem, with an emphasis on the Nordic perspective.

ESG performance paradox

Jordan N. Bosalego, CFA, says that without strong fiduciary standards, ESGs can become an excuse for fund managers to underperform and charge higher fees.

Tile for a future of sustainability in investment management

Thematic Investing: Thematically Wrong?

Nicolas Rabner examines the merits of thematic investing and how its performance compares to established benchmarks. He concluded that, “ESGs and similar themes are forms of investment based on personal preference. They may come at a cost, but they achieve certain non-financial objectives.”

ESG debate heats up: four more challenges

What are the main areas of concern in the ESG world? Christopher K. Merker, PhD, CFA, examines the challenges surrounding standards, greenwashing in investment products, and the urgency of climate change.

ESG Investing: Can You Have Your Cake and Eat It Too?

Do companies with higher ESG ratings outperform their lower-ranked counterparts? Gautam Dhingra, PhD, CFA, and Christopher J. Olson, CFA, shares his analysis.

ESG Investing: Too Good To Be True?

Nicolas Rabner says that the notion that companies that care about the environment, care for their employees and demonstrate good governance performance is a mirage.

Beyond Carbon: Water Risk and Sustainable Investment

The water crisis in Cape Town, South Africa, shows that carbon emissions and climate change are not the only threats to sustainability, says Monica Freeman, CFA. Water concerns already affect the future risks of investors’ bottom lines as well as their top lines.

Financial Analyst Journal Current Issue Tile

Human Rights Issues and Your Portfolio: Risks and Opportunities

What are the risks and opportunities associated with or failing to integrate human rights issues into asset allocation considerations? Anjali Pradhan, CFA, explores the issue.

Sustainable Investment and Fiduciary Responsibility: Conflict or Confluence?

Osman Hayat, CFA, interviews David Blood, co-founder of Generation Investment Management, which surveys sustainable investing trends and discusses why sustainability is an integral part of fiduciary duty.

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All posts are the views of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of the CFA Institute or the author’s employer.

Image Credit: © Getty Images / Bloomberg Creative

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CFA Institute members have the right to earn self-assessment and self-report vocational education (PL) credits, including material enterprising investor. Members can easily record credits using their online pl tracker.

Rodri Preuss, CFA

Rodri Preuss, CFA, is the Senior Head of Industry Research for the CFA Institute. He is responsible for the creation and maintenance of global research work at the CFA Institute, which includes planning, coordinating and producing research materials across the CFA Institute research platforms, including Future of Finance, the CFA Institute Research Foundation, the Journal of Financial Analysts. , and the Entrepreneur Investor Blog. Preece formerly served as Head of Capital Market Policy (EMEA) at the CFA Institute, where he was responsible for key capital markets policy activities in the Europe, Middle East and Africa region. Preuss is a former member (2014–2018) of the Group of Economic Advisers of the European Securities and Markets Authority (ESMA) Committee on Economic and Market Analysis. Prior to joining the CFA Institute, Preece was a manager at PricewaterhouseCoopers LLP, where he specialized in investment funds.

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