Sustainable investing is the practice of incorporating material environmental, social and governance (ESG) factors in investment decisions and active ownership. It is based on the understanding that material ESG factors play a substantial role in long-term value creation.
Why Should Investors Care About ESG Issues?
Research shows that companies that are managed responsibly deliver better long-term financial results. Additionally, firms that adhere to environmental efficiency, social awareness and high governance standards are well-positioned to withstand emerging risks and capitalise on new opportunities. Also, ESG allows investors to express their specific values in their portfolios if they so wish.
Car companies should have a strategy for ensuring passenger safety, and managing fleet fuel economy and emissions reductions.
Airlines should ensure that their aircraft are fitted with all the highest quality safety features at the time they go to market.
Social media platforms should be aware of — and held accountable for — risks related to data protection and consumer privacy.
Today, issues like climate change, information security and gender diversity are playing a growing role in company success.
A Case For: Sustainable Climate Bond Strategy
State Street Global Advisors has developed a breakthrough climate bond strategy. Our climate-aware investment process enables you to immediately improve your portfolio’s carbon profile and reduce climate risk, while maintaining target returns.
Green Bonds: Mitigate Climate Risks
Would you like to make a positive impact through your investments? We argue that investors in listed securities who want to encourage more sustainable corporate behaviour should invest in green bonds.
ESG in Index Investing: Deconstructing Five Myths
Two of the most prominent investment trends of the post-global financial crisis world have been the sustained rise of both indexing and environmental, social and governance (ESG) investing.
Defining Your ESG Goals
The COVID-19 pandemic has impacted all areas of our lives and highlights how globally interconnected we are. Encouragingly, the crisis has sharpened the focus of governments, companies and society on tackling the longer term threat of climate change. It has also increased awareness of the significance of ESG issues in general. Amid environmental and societal challenges, and incoming ESG regulations, how can investors build long-term resilience in their portfolios while benefiting from new investment opportunities?
We advise that investors define and develop specific ESG investment objectives and goals, based on their vision, mission and investment goals. Common investor objectives can include alpha generation, risk mitigation, adhering to ESG regulations or aligning the portfolio to the investor’s values. Investment principles can be developed based on these objectives, which will form the ESG investment strategy.
ESG Investment Strategies
Investors can meet their specific ESG objectives through a range of investment strategies.
Negative screening excludes specific companies, sectors or countries based on ESG factors and/or an investor’s values-based ideals. The benefits include mitigating reputational risk and enabling investors to avoid allocating funds to companies or sectors that conflict with their beliefs.
With over 40 years’ experience in developing screened approaches across equities and fixed income, we offer clients a tailored way to express their values or risk mitigation preferences in their portfolios.
This approach focuses on investment in sectors and companies that have superior ESG performance relative to the universe or industry peers. Research shows that companies with high ESG scores tend to outperform companies with low ESG scores in the long term.
At State Street, we aim to invest in sectors and companies selected for superior ESG performance relative to investment universes and industry peers, using our internal R-FactorTM ESG rating system and other ESG data sources.
ESG data is available to all teams at State Street, across all asset classes and investment styles. Our active portfolio managers systematically integrate ESG signals and factors into the investment analysis and decision-making process, to mitigate risk and identify opportunities for long-term outperformance
This is a thematic investment approach that aims to align portfolios with the transition to a low carbon economy and a reduction in global warming to well below 2°C.
For investors seeking to align portfolios with the Paris Agreement goals and the transition to a low-carbon economy, we offer a variety of options across equities and fixed income. Our Sustainable Climate Strategies allow investors to benefit from both mitigation of current and future emissions, and adaptation to embedded climate risks.
At State Street, our mission is to invest responsibly to enable economic prosperity and social progress. We believe that identifying and systematically incorporating material ESG issues is integral to our role as fiduciaries of our clients’ capital. As one of the world’s largest asset managers, we can partner with clients to achieve their ESG objectives through our global expertise in ESG research, investment strategy and data analytics, leveraging our top rated* ESG capabilities.
Through strong engagement, voting and thought leadership, we have seen companies respond to our calls to action to enhance diversity at the board level, strengthen board leadership and improve disclosure on their sustainability practices.
The returns on a portfolio of securities which exclude companies that do not meet the portfolio's specified ESG criteria may trail the returns on a portfolio of securities which include such companies. A portfolio's ESG criteria may result in the portfolio investing in industry sectors or securities which underperform the market as a whole.
Responsible-Factor (R Factor) scoring is designed by State Street to reflect certain ESG characteristics and does not represent investment performance. Results generated out of the scoring model is based on sustainability and corporate governance dimensions of a scored entity.
All information is from SSGA unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. Past performance is not a reliable indicator of future performance.
The information contained in this communication is not a research recommendation or ‘investment research’ and is classified as a ‘Marketing Communication’ in accordance with the Markets in Financial Instruments Directive (2014/65/EU) or applicable Swiss regulation. This means that this marketing communication (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research (b) is not subject to any prohibition on dealing ahead of the dissemination of investment research.
This information is for informational purposes only, not to be construed as investment advice or a recommendation or offer to buy or sell any security. Investors should always obtain and read an up-to-date investment services description or prospectus before deciding whether to appoint an investment manager or to invest in a fund. Any views expressed herein are those of the author(s), are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. There are no guarantees regarding the achievement of investment objectives, target returns, portfolio construction, allocations or measurements such as alpha, tracking error, stock weightings and other information ratios. The views and strategies described may not be suitable for all investors. SSGA does not provide tax or legal advice. Prospective investors should consult with a tax or legal advisor before making any investment decision. Investing entails risks and there can be no assurance that SSGA will achieve profits or avoid incurring losses.
Performance quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may be higher or lower than that quoted.
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