Sustainable investing video library

Sustainable investing covers a broad area of topics around how companies can generate sustainable profits. In these videos, BlackRock sustainability experts answer some key questions that investors are asking about sustainable investing.

 


Capital at risk. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

Sustainable investing: A ‘Why Not’ moment

Kelli Byrnes: If you can achieve the same risk and return in a portfolio, but have better sustainable characteristics, why wouldn’t you?

Brian Deese: We’re at a conference today because we are seeing growing conviction from the investment research and from investors speaking with their dollars that the old notion that you have to trade off performance for virtue no longer applies.

Lee Sullivan: It’s moved away very much from what was the old style exclusion approach, excluding toxic assets.  It’s now been much more sophisticated approach around value not values.

Tariq Fancy: So in the early days of sustainable investing, it was largely around screens to exclude certain categories of investing.

Amelia Tan: Starting from institutional investors who were looking to avoid headline risks around investing in companies that engaged in controversial business activities, or individuals who were looking to align their investment portfolios with their values.

Tariq Fancy: Which in general isn’t really a way to improve return, but it is a way to align values of investors with their portfolios. And where we’re seeing things start to evolve is more is around ESG data to inform existing processes.

Amelia Tan: Sustainable investing is about future-proofing our investment portfolios. We have seen that by investing sustainable you are not sacrificing financial performance.  But at the same time, this aligns with the changing demographic of our investor base.

Thomas Fekete: In 2018, the demand for sustainable investment products is accelerating. All our clients, every day, are asking us for solutions. We are lucky that we can offer building blocks which are sustainable investments across fixed income, equity, alternatives, including hedge funds, but also real assets, as well as multi-asset solutions.  These are in high demand since the start of the year, both in index form and in active form.

Brian Deese:  Sustainable investing combines the best of traditional investing with insights about how the environment, society and governments are changing the way companies operate.

Tariq Fancy: So an analysis of 1975 showed that 17% of the valuation of an S&P 500 company was linked to their intangibles. That figure has increased in 2015 to 85 percent. So investors now start to realize that on some level, they need to look at non-financial considerations to better understand the valuation of companies and investment performance.

Lee Sullivan: And as owners of assets, you have rights, and as owners of assets, you have responsibilities too. And I see our responsibilities as asset owners to try to have as big an impact as we can and create a positive future.

Kelli Byrnes: If you can achieve the same risk and return in a portfolio but have better sustainable characteristics, why wouldn’t you?

Tom Fekete: The first trend we see in 2018 is acceleration. Acceleration of the new for sustainable investment products. Because clients are looking at building full portfolios with sustainability in mind. So they need building blocks such as solutions in fixed income, equity, alternatives and even multi-asset solutions. So for that, we’re offering index propositions as well as active propositions which are embedding sustainable goals.

Lee Sullivan: So we’ve seen products develop quite significantly over certainly the last 18 months, two years, where all asset managers now have to have an ESG offering. It’s moved away very much from what was the old style exclusion approach, excluding toxic assets. It’s now a much more sophisticated approach around value, not values, which clearly as a pension scheme investor, like us, is our overarching objective is to add value for our members.

Tom Fekete: 2018 will also be the year for growth of sustainable benchmarks. This is very important to deliver the solutions, both in the index world and in the active world. In index, it’s quite natural that you need these benchmarks to be able to track and launch ETFs and index funds. In the active space, it’s very important to have new benchmarks, allowing portfolio managers to deliver against them and not be measured around benchmarks which do not reflect the sustainable goals that they are using when managing their portfolios.

Brian Deese:  We are seeing products develop as clients get more interested and more sophisticated around sustainable investing. So for example, we’re seeing an increased focus on thematic investments in areas like climate change and diversity, where clients and investors believe that they can improve their portfolio performance over time.

Tariq Fancy:  So in the early days of sustainable investing, it was largely around screens to exclude certain categories of investing which in general isn’t really a way to improve return, but it is a way to align values of investors with their portfolios. And where we’re seeing things start to evolve is more around using ESG data to inform existing processes, all with a goal of saying, let’s understand better the value of companies and let’s use this data to inform our processes and get better risk adjusted returns.

Kelli Byrnes: So we’re really seeing sustainability being incorporated into portfolios in multiple different ways and I would say largely it depends on the investor type. So for example, with institutions, historically they’ve incorporated sustainability through separate account mandates and it’s mostly been exclusionary. But more and more we’re seeing that evolve and they are actually starting to make it more a part of their core portfolio and looking to do things like achieve a lower carbon emissions across their entire portfolio. So it’s really evolving past exclusions, but that’s where it’s been previously. On the wealth side, investors are really building new portfolios, building sustainable models, and they’re looking to do so in a way that is similar to their traditional portfolios so they can achieve the same investment goals but with better sustainability.

Brian Deese: Sustainable investing covers a broad area of topics around how companies can generate sustainable profits, everything from how they govern their own conduct to how they manage their supply chain and their interaction with the communities in which they operate. The issues are broad but they’re also important because they signal toward how a company is managing its long-term liabilities and long-term opportunities.

Tariq Fancy: Sustainable investing used to be primarily around exclusionary screens; where the world is going in the future is more around using new data techniques and measurement capabilities to instead of screening out areas, to just look at every potential investment opportunity and surface new data that can inform the investment process and improve risk adjusted returns.

Amelia Tan: The notion that you have to sacrifice performance in order to invest sustainably stems from the use of exclusionary screens as the sole approach for sustainable investments. When you have to exclude companies or sectors, you thereby reducing your investible universe, and therefore introducing higher risk because of lower diversification. Today’s ESG investing approach enables you to invest towards both an ESG outcome as well as a financial outcome, without sacrificing performance.

Brian Deese: Sustainable investing is like any other discipline of investing: investors need to be educated, they need to know what they own and they need to think actively about how they are incorporating these themes into their portfolios. There are sustainable investment solutions that can track broad market indices, there are sustainable investing that take active risk consistent with investor appetite and demands. It’s important that people approach sustainable investing like they would any other type of investing, understand the risks but also understand the opportunities.

Brian Deese: We’ve seen hundreds of billions of dollars flowing into ESG solutions at double-digit rates over the last several years, and everything we’re seeing in the market suggests that is only going to accelerate going forward.

Tariq Fancy: You have sort of a win/win scenario for investors where they build good returns for their beneficiaries, most of whom are people saving for retirement, but you also see a positive impact on societies around them. And that win/win situation, is something that investors are increasingly interested in, in putting money into increasing amounts every day.

Lee Sullivan: Millennials are certainly a big part of the picture, however, we’ve also seen that there are older investors who perhaps have created their wealth and are now deciding they would like to give something back. And clearly older investors also have children who are younger and they want to ensure that the impact they’re having is one that creates a sustainable future for the next generation.

Brian Deese: If you’re looking at your portfolio, you need to be asking question about whether companies are managing material issues that could affect their sustainable profit across time. That’s an issue that millennials care about, but it’s an issue that nay investor who wants a full understanding of their portfolio is going to need to think more about going forward.