Sustainable investing goes hand-in-hand with performance — and financial resilience
Investors don't need to worry that using sustainable strategies will cost them money, says Blackrock investment specialist Blair Hannon
"There is certainly a common view that there's a return sacrifice when it comes to ethical investing and at BlackRock, we just disagree," Hannon says. "We just don't believe that by investing sustainably, you have to sacrifice returns."
The pandemic was a key test for the company's sustainable investments, and they passed with flying colours, Hannon says. Longer term data reported since mid 2018 back the argument.
In this short video, Hannon spells out how ESG investing — particularly the G of governance — can actually improve financial resilience. Transparent, high-quality data is a critical component.
He outlines how Blackrock, partnered with MSCI, uses a controversy score to rate the activities of companies worldwide to ensure they're delivering on their promises.
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Do investors need to sacrifice performance when choosing to use sustainable products in their portfolios?
There is certainly a common view that there's a return sacrifice when it comes to ethical investing and at BlackRock, we just disagree. We just don't believe that by investing sustainably, you have to sacrifice returns.
I think we've got a couple of bits of data to back that up. I think without question, in the first quarter of 2020 with COVID during that pandemic there was a key test of that conviction.
Is this going to bounce back? We know certainly in the short term — we all know that again past performance is not indicative of future performance — but it did align.
The resilience of a portfolio did align with a reasonable performance out of the back of that downturn.
I think we've also looked at a bit more of a longer-term view and have been publishing some information since mid-2018. Again, it demonstrates that sustainable investing strategies do not equal return trade-offs and they do actually have important resilient properties.
If you think about it from a governance point of view, the G of ESG, then we know that having things like independent boards, having really good governance, good data security, these sorts of things are going to be beneficial for companies.
Hence we really should see a better performance out of those companies. No, we don't think there is a sacrifice when it comes to investing this way.
How can investors be sure the “sustainable” companies will live up to their expectations?
Again, it comes back to the data. Is the information accessible to investors? How transparent is that information for them? An example we might use here is how we partnered with MSCI for our ETF products in Australia.
One of the elements that they utilise is what's called a controversy score. Each company is given a controversy score and it's rated, in a way.
That framework is built around international norms that you're going to find are pretty widely accepted. Things like the Declaration of Human Rights, the UN Global Compact.
An example might be a spill or regulatory action, or other areas that might be relatable to controversies, and that will get ranked on a scale of severity in terms of that controversy.
In the case of the products that we have on market, having lots of controversies, having severe controversies — we'll pull that company out.
I think what that means for investors is you need access to data, access to transparency, but also put your trust in companies like BlackRock or MSCI to understand that the data that they're utilising and building off is going to be relevant for you as an investor.