The Pandemic two years on - how COVID-19 boosted efforts towards a sustainable economy

What do we mean by more sustainable?

The UN has been pondering this question for some time and in 2015 it published a set of “Sustainable Development Goals (SDGs*)”. These goals are a collection of 17 interlinked and ambitious aims, which are designed to be a blueprint to achieve a better and more sustainable economy for all. These goals are often framed around three key factors, environmental, social and governance – collectively known as “ESG”.

Investing for long-term outcomes not short-term profits

Goals such as ending poverty, achieving gender equality and protecting ecosystems can’t be achieved overnight. This requires a fundamental shift in the way finance is conducted. We need to move away from an ideology focused on short-term profits and towards investments that encourage developmental efforts. Investor stewardship (investors using their influence to push companies to achieve certain outcomes) is one area that is already playing a crucial part in advancing the sustainable development goals agenda.

Stewardship is a powerful vehicle for holding companies to account around the feasibility and credibility of their net-zero commitments (that is, commitments to reduce their carbon emissions in such a way as to achieve a balance between carbon emitted and carbon removed from the atmosphere), and many other sustainable goals. It also helps investment houses to decide which companies to invest in and allows them to monitor company strategies by challenging these companies’ boards.  

For example, at M&G we continue to focus our engagement activities on what investee companies are doing to reduce emissions towards carbon net zero, and to better understand their transition plans towards this goal.  

Diversity and inclusion is another key area of focus, as there is recognition that it can materially contribute to better financial performance and a better society. At M&G we actively analysed our  portfolios of company shares for diversity laggards and as stated in our most recent report, engaged with around 20 firms that did not meet our minimum criteria in terms of board diversity.

Voting at company AGMs is also a robust tool for encouraging change and supporting businesses to engage in long-term thinking.    

It is this kind of active engagement from shareholders which presses businesses to make positive changes that advance the UN sustainable development goals agenda.

So, big financial institutions can encourage business to be more sustainable, but what are smaller and individual investors doing?

The demand for sustainable products is high and according to the government’s “Greening Finance: A Roadmap to Sustainable Investing” paper, 70% of the UK public want their money to go towards making a positive difference to people or to the planet.  

The market is increasingly offering this type of product:

• ‘Impact investing’ products aimed at generating positive social and environmental impacts that are measurable and provide a financial return;
• Sustainability-focused investing products, which select and include investments on the basis of fulfilling certain sustainability criteria; and
• ESG integration products, which aim to include material ESG factors into the investment analysis and decision-making process.

ESG investing may well have been niche in the past, often an option only available to institutional investors, but according to a recent report  by GSIA and Bloomberg intelligence, the amount of money invested in dedicated ESG products is forecast to continue to grow strongly.

Sustainable investing is here to stay

It is no longer about achieving financial goals - investors are now considering how their investments affect the wider society and the planet. Governments’ minds are being focused on sustainability and the long-term prospects, with the recent COP26 conference attesting to this. As for the individual investors, we are seeing demand for more sustainable solutions for their saving and investment needs.

The value and income from a fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise and you may get back less than you originally invested.

Investing involves risk, including the loss of principal. Where any performance is mentioned, please note that past performance is not a guide to future performance.

The views expressed in this document should not be taken as a recommendation, advice or forecast. We are unable to give financial advice. If you are unsure about the suitability of your investment, speak to your financial adviser.

* While we support the UN SDGs, we are not associated with the UN and our funds are not endorsed by them.

For Investment Professionals only. Not for onward distribution. No other persons should rely on any information contained within this document. The views expressed represent the opinions of M&G Investments which are subject to change and are not intended as investment advice or a forecast or guarantee of future results. Stated information is provided for informational purposes only. It is derived from proprietary and non-proprietary sources which have not been independently verified for accuracy or completeness. While M&G Investments believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and management’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions which may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. This financial promotion is issued by M&G International Investments S.A. The registered office is 16, boulevard Royal, L-2449, Luxembourg. 705605 / Mar 22