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Your Guide to Sustainable Investing

Want to secure a sustainable source of income and returns? Look beneath the hood of your fund holdings to see how they score on environmental, social and governance factors

Emma Wall 29 November, 2017 | 3:27PM

Do you want sustainable, long-term investment returns? Increasing evidence suggests that in order to reach your investment goalsthe companies that deliver the best returns to shareholders are those which care about ESG, about environmental, social and governance issues.

In the past, ethical investing was thought of as a lower-return strategy, investing for people who wanted to put morals above profits. But now evidence suggests that the opposite is true; companies which embrace low-carbon technology for example, are more likely to be future proofed, companies which treat their employees fairly are more likely to have consistent cash flows.

Last year, Morningstar introduced the Sustainability Rating for funds, a tool that helps investors to assess funds underlying holdings on environmental, social and governance factors. What is the rating, how does it work, and what is the benefit for investors? And does sustainable investing bring extra returns? These questions are discussed in this interview by Morningstar's Emma Wall with fund analyst Muna Abu-Habsa:

 

Morningstar Sustainability Rating

Morningstar introduced the Morningstar Sustainability Rating in March 2016. More than 34,000 funds currently have a Morningstar Sustainability Rating globally and that number is growing. This new rating was developed in cooperation with data supplier Sustainalytics.

Using the rating, investors can screen their existing portfolio and build a new portfolio based on sustainability criteria and select the sustainability factor they consider most important.

Younger Investors Embrace Sustainability

Younger investors in particular are embracing ESG factors when selecting stocks and funds for their portfolio. This is an extention of how the Millennial generation make daily decisions such as car ownership, grocery shopping, energy provider and even employer. A Morgan Stanley survey found that Millennials are three times more likely to choose a job based on sustainability factors, and a massive 84% of Millennials include ESG factors in their investment decisions.

The Morgan Stanley survey also found that over a seven year period funds with a sustainable approach to investing outperformed their less-sustainable peers 65% of the time.

Articles and Videos on Sustainable Investing

Passive Fund Providers Taking an Active Interest in ESG

President Trump Drives Investors to ESG

ESG Passive Funds Fail to Deliver

Wind Energy Options for the UK Investor

Johnson Matthey Rides the Electric Car Boom

Liontrust: ESG Delivers Superior Investment Returns

Liontrust: 3 Top Sustainable Stocks

Can an ESG Fund Hold Energy and Tobacco Stocks?

3 Top ESG Rated Global Equity Funds

What is Responsible Investing?

What is a Green Bond?

Why ESG Emerging Market ETFs Have Underperformed

What is Driving Growth in Sustainable Investing

ESG: Essential Steps for Successful Long Term Investing

How to Invest Without Damaging the Environment

Top Equity Funds for Sustainable Returns

How Climate Change Will Impact Your Portfolio

How Sustainable are European Equity Funds?

Invest Sustainably for Long Term Returns

3 Stock Picks for Sustainable Returns

Which Stock Market Will Deliver Sustainable Profits?

Why All Investors Should Care About Sustainability

3 Top Performing ESG Funds

Which Sin Stocks Do UK Equity Funds Own?

How Long Term Investors are Prioritising Sustainability

How Millennials are Leading the Way with Sustainable Investing

Can ESG Mitigate Risk in Emerging Markets?

Is Your Sustainable Fund Living Up to its Name?

How Sinful is Your UK Equity Fund?

Low Carbon ETFs for the Socially Responsible Investor

Does Your Ethical ETF Hold Unethical Stocks?

What Makes a Good Company?

Why Morningstar Launched a New Way to Rate Funds

Invest Sustainably for Long Term Investment Returns

The Morningstar Sustainability Rating

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author Emma Wall

Emma Wall  is Senior Editor for Morningstar.co.uk