Sustainable Investments - Pictet

Sustainable investment is not only good for protecting the world for tomorrow's generations; it can also be a route to superior portfolio returns.

What constitutes a sound investment or business decision? Less than a decade ago, the answer to that question would have been framed exclusively in financial terms. No longer. Thanks to structural trends such as climate change and higher income inequality, a growing number of companies now put environmental, social and governance (ESG) considerations on a par with economic ones. That makes commercial sense, and for several reasons.

First, as governments around the world gear up to meet the Paris Accord targets on global warming, environmental regulation is likely to become a bigger risk to the bottom line. Second, the effects of the steady decline in the cost of renewable power and energy storage promise to be transformative, particularly for companies operating in energy-intensive industries such as energy, utilities and transport. The third incentive for businesses to embrace ESG is consumer power. In recent years, consumers have become increasingly aware of how corporations affect society and the environment. As a result, brand perception and customer loyalty – the non-tangible assets which make up a part of a company’s market value – are increasingly linked with ESG credentials. That applies both to the long-term strategic development of the business, as well as to its day-to-day practices.

The Planetary Boundary framework can help investors understand the environmental cost of economic activity.

Investors can make an allocation to thematic equities whichever portfolio construction approach they use.