As awareness of ESG issues, such as climate change, persists and gathers pace, we expect sustainable strategies to benefit from the increased desire of consumers, corporates, regulators, and governments to act on this. This, in turn, is likely and indeed already has led to significant allocation of capital towards solving some of the world’s sustainability challenges. Take the US Inflation Reduction Act (IRA) that was passed in summer 2022 for example. This is the most ambitious clean energy plan introduced in the US and provides fiscal support to the whole clean energy value chain to the tune of $360 billion or more. The EU has since announced its response, the Green Deal Industrial Plan. We expect these positive structural trends to continue, which could well benefit sustainability orientated strategies.
Conclusion
While we have seen that adopting a sustainable strategy can reduce the available opportunity set to some extent, there remains a large and growing number of companies that are suitable for inclusion in a sustainable fund. Investment biases can exist, but we see these as issues to mitigate through a thoughtful approach when constructing a sustainable strategy. Performance can certainly fluctuate vs traditional funds from year to year, but in the longer term we believe that much of the ‘noise’ will offset, and sustainable funds are well placed to benefit from the ongoing structural trends for years to come.
[1] We classify stocks with at least 50% positive revenue alignment with the UN Sustainable Development Goals as sustainable. Stocks can be deemed sustainable with less than 50% positive alignment however require a mitigating factor such as good conduct. Further details on the UN SDGs can be found here: THE 17 GOALS | Sustainable Development (un.org) .
Simon Holmes is Director, Multi Asset Solutions and Eloise Robinson is Associate, Multi Asset Solutions at Columbia Threadneedle Investments |
