“No good deed goes unpunished”?
Following on from the introductory post on sustainable investing dated 18th December I thought I would tackle head on some preconceptions that stop investors accessing the capital markets with a value based approach. The pushback often heard when broaching the subject of sustainable investing is, “Yes, in theory the idea is attractive but I don’t want to give up return.” The notion that voting for the good guys with your capital will disadvantage you is entrenched – but is it right?
Sustainable companies have been categorised and measured as investments since 1995. A Swiss investment company called Sustainable Asset Management (SAM) launched a joint venture nearly twenty years ago with Dow Jones to create the Dow Jones Sustainability Index. After a few years of monitoring the constituents of the index SAM’s initial proposition was true: companies that were more sustainable were outperforming those companies that were less sustainable. In its first eight years between 2002 and 2010 the DJSI Sustainability Leaders 80 index outperformed the MSCI World.
How or why? The sustainability premium – a company with a high sustainability score may have higher returns than its competitors because of better resource efficiency, a greater ability to innovate and develop plus a better relationship with stakeholders and customers meaning a stronger brand and pricing. If this trend continues for a further twenty years sustainable investing will be legitimised and become the norm.
MSCI World vs DJSI Sustainability Leaders 80
Source: Dow Jones Sustainability Indices Oct 2002 – Oct 2010
Photo credit: Intel Free Press