Sustainable investment performance criticisms ‘out-of-date’

Arguments that sustainable investment approaches are too simplistic and don’t offer competitive returns have been labelled as “out-of-date” by Kevin Parker, chief executive of Sustainable Insight Capital Management.

In an article for Fund Web Parker writes that one of the criticisms of sustainable investment is that the investment approach of the sustainable world has often appeared simplistic. He added that many think the concept of negative screening, in which certain sectors or companies are excluded, lacks the sophistication of the investment mainstream.

However he refuted this claim saying, “A variety of sustainable approaches exist, including positive screening and thematic investing. Both of these investment processes persist in the mainstream channel.”

Parker also noted negative screening was becoming increasingly popular, demonstrated by the campaigns and demands for fossil fuel divestment. The calls for divestment have led to some pension funds and universities committing to review their investment policies.

Another critique of the industry is that whilst people in the sustainable investment world were often environmental experts, they were often not investment professionals. As a result, they sometimes fail to have an impact on the mainstream and produce competitive returns for investors.

Parker writes, “Terms such as ‘non-financial’ returns and ‘triple bottom line’ (profit, people and planet) are seen as […] excuses for sub-standard performance. Again, this criticism looks out-of-date.

“A number of Wall Street veterans have embraced the sustainable message. Most of the major investment banks have developed environmental and social governance valuation criteria. Financial and sustainable experience is not a real problem.”

Instead, Parker says the reason there is a “persistent reluctance” to welcome responsible investment into the mainstream is an issue of materiality. By ensuring that companies release information to the market, investors are able to make informed judgement. This is an issue that the Sustainability Accounting Standards Board is currently addressing.

If Parker’s assessment proves correct, sustainable investment could begin to move into the mainstream and gather pace at the end of next year, when sector reporting standards are likely to be in place for most industries.

Parker’s article was in response to a separate article written by Jeron Bos, head of global equity research at ING Investment Management, which argued that sustainable investment helps identify companies that had long-term stability and as a result improved performance. He also described the sustainable investment movement as an “irreversible trend”.

Further reading:

What is you bank doing with your money? 35% of Britons have ‘no idea’

Women play a key role in helping make the investment world sustainable

Private equity industry adds weight behind responsible investment

Fossil fuel divestment ‘builds capacity and resilience’, says Mary Robinson

Sustainable investment an ‘irreversible trend’, says ING exec