‘Smart money’ is heading into sustainable investments, says study

A study from the pan-European thinktank Eurosif (the European Sustainable Investment Forum) has revealed that sustainable investment is now largely perceived by Europe's high net worth individuals (NHWI) as a valuable mainstream investment strategy, not merely one with a niche appeal.

The study, entitled High Net Worth Individuals & Sustainable Investment, analysed the findings of a questionnaire distributed to over 400 participants ranging from individuals, family offices and wealth managers between April and June of this year.

The report said that European high net worth individuals are effectively navigating the crisis due to their focus on the incorporation of environmental, social and governance (ESG) issues with the ‘smart money’ being increasingly allocated to aspects of sustainable investing ‘as a means to preserve capital and opportunistically earn above average returns'.

Dr. Burkhard P. Varnholt, CIO of Bank Sarasin, one of the study’s sponsors believes that sustainable investment is playing an ever more important role in the construction of portfolios.

‘Sustainable investment is no longer a specialist discipline that is only of interest to a small group of investors,' he said. 'Today more investors view it as the basis for a forward looking investment strategy that incorporates a focus on value preservation.’

According to Varnholt, knowledge of ESG issues is now essential for future investments.

‘Supply shortages have become a dominant issue in today’s world, as has the realisation that the achievement of true success in any industry depends increasingly on the sustainable management of limited economic, natural and social resources,’ he said.

Following its research, Eurosif predicts that by 2013 the European NHWI Sustainable Investment market will approach the €1.2 trillion mark.

‘ESG integration is a financial discipline and not a standalone product; the industry must work with the best asset managers to fully integrate the ESG policies across a multitude of asset classes, strategies and products,’ said William. T. Mills III, whose firm, Highland Good Steward Management also sponsored the study.

Examples of sustainable investment strategies cited by the study include thematic investing based on sustainable issues such as clean energy, water, climate change and lifestyle; community investing in underprivileged economic and geographic areas; and, screening of the portfolio with positive screening based on investing in companies with a commitment to responsible business practices and negative screening focusing on the exclusion of sectors such as weapons or tobacco.

The report does however cite concerns over a bubble risk, particularly with regards to thematic investing and some specific sectors. Its findings reveal that investors are also weary of the dependency on potential government intervention and regulatory pressure, which could cause some sectors, such as clean tech or solar to be subsidised by state or local authorities.