Global Insights

What does sustainable investing actually mean?

‘Sustainable investing’ has become a catch-all term for an extremely broad range of investment approaches. To deliver returns to investors and positive impact for a world in urgent need of sustainable development, investors need to be very clear how their money is being allocated – and to what ends.

17 Jun 2022

2 minutes

The fast view

Sustainable investing at Ninety One

  • We think the best people to assess the sustainability of a potential investment are those doing the financial analysis, including our portfolio managers.
  • We also believe in trying to have a real-world impact, including on climate change. It is easy to ‘clean’ a portfolio by selling out of the highest emitters, but to drive genuine decarbonisation, we assess whether companies have credible net-zero transition plans.
  • As well as continuing to deepen the integration of ESG into our investment processes, we are expanding our range of sustainable strategies. Each of them has specific sustainability characteristics and seeks to make a positive impact. For all of them, we provide transparent reporting down the level of individual holdings.
  • The Global Environment strategy, for example, invests in select companies that offer products and services that are enabling the transition to a lower-carbon global economy. It has a distinctive research and investment process designed to support this focus. Global Sustainable Equity invests in companies that are sustainability leaders in a broader sense; again, it has a distinctive process to enable it to identify such companies.

We need new approaches to investing sustainably

  • In assessing sustainability, we don’t rely on external ESG ratings – not least because they are backward-looking and there is an alarming inconsistency in ratings from different providers.
  • We aim to focus on the sustainability factors that really drive value. We do this by analysing externalities – i.e., companies’ impacts on society and the environment – which we believe are often mispriced.
  • One benefit of taking a distinctive approach to sustainability analysis is that it can enable us to uncover different potential alpha opportunities, away from the more crowded trades.
  • Assessing company culture is one of the features of our sustainability analyses. Academic evidence suggests ‘strong culture’ is a persistent alpha signal.

Every company needs a careful sustainability assessment

  • Sustainability analysis requires careful judgments. For example, you can’t figure out whether a company is aligned with the net-zero transition just by looking at a single datapoint. Engagement is key to assessing companies’ sustainability.
  • The UK isn’t one of the biggest emitters, but we still take emissions seriously in our UK-focused portfolios. For example, we have been engaging with a company that installs smart meters. We are encouraged that it not only sells a product that is helping to tackle emissions; it has a 2030 net-zero plan that will include replacing its entire vehicle fleet with electric vehicles. In other words, it is running its own operations sustainably, as well as providing a service that addresses a sustainability challenge.

Sustainability analysis is key in emerging markets, too

  • In emerging markets, material externalities are often more pronounced, both positive and negative. There is often a lack of ESG data, but that does not mean you can ignore sustainability as an investor. It just means sustainability needs to be assessed using a proprietary framework and via one-to-one interactions with companies.
  • Sustainability is a huge opportunity in emerging markets because there are so many underserved areas, such as access to financial services. So we see a tremendous structural-growth potential for companies that address social and environmental issues in emerging markets, and therefore for investors that can analyse them from a sustainability perspective.
  • China is complex but, in our view, investable from a sustainability perspective. Again, the key is to focus on the externalities at the company level and to try to understand the value being created for different stakeholders.

All investments carry the risk of capital loss

Specific risks
Currency exchange: Changes in the relative values of different currencies may adversely affect the value of investments and any related income. Derivatives: The use of derivatives is not intended to increase the overall level of risk. However, the use of derivatives may still lead to large changes in value and includes the potential for large financial loss. A counterparty to a derivative transaction may fail to meet its obligations which may also lead to a financial loss. Equity investment: The value of equities (e.g. shares) and equity-related investments may vary according to company profits and future prospects as well as more general market factors. In the event of a company default (e.g. insolvency), the owners of their equity rank last in terms of any financial payment from that company. Concentrated portfolio: The portfolio invests in a relatively small number of individual holdings. This may mean wider fluctuations in value than more broadly invested portfolios. Commodity-related investment: Commodity prices can be extremely volatile and losses may be made. Emerging market (inc. China): These markets carry a higher risk of financial loss than more developed markets as they may have less developed legal, political, economic or other systems. Sustainable Strategies: Sustainable, impact or other sustainability-focused portfolios consider specific factors related to their strategies in assessing and selecting investments. As a result, they will exclude certain industries and companies that do not meet their criteria. This may result in their portfolios being substantially different from broader benchmarks or investment universes, which could in turn result in relative investment performance deviating significantly from the performance of the broader market.

General risks
All investments carry the risk of capital loss. The value of investments, and any income generated from them, can fall as well as rise and will be affected by changes in interest rates, currency fluctuations, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which the investment strategy invests. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results. Environmental, social or governance related risk events or factors, if they occur, could cause a negative impact on the value of investments.

Authored by

Deirdre Cooper
Portfolio Manager
Matt Evans
Portfolio Manager
Juliana Hansveden
Portfolio Manager

Important Information

This communication is provided for general information only should not be construed as advice.

All the information in is believed to be reliable but may be inaccurate or incomplete. The views are those of the contributor at the time of publication and do not necessary reflect those of Ninety One.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

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