The Future Of Sustainability In Investment Management

Sustainability is an important aspect of investment management that should be considered from the moment a company's products or services are deployed on a global scale. It does not mean that all investments must be sustainable, but rather that companies should ensure their investments will be sustainable at some level if they want to reach their goals.

The future of sustainability in investment management is in question. It requires balancing financial and non-financial factors, striking a balance between short and long-term goals, and balancing stakeholder interests for fair results.

Sustainable investing is transitioning from a nice-to-have concept to a must-have reality that affects all investment portfolios. A growing understanding that certain Environmental, Social, and Governance (ESG) aspects hold economic significance, particularly in the long run, necessitates incorporating these material ESG factors in investment decision-making.

Explore the future of sustainability in investment management

What is Sustainability in Investment Management?

Sustainability in Investment Management refers to the integration of Environmental, Social, and Governance (ESG) considerations into the investment process to assess their impact on the financial performance and long-term sustainability of the invested assets. This approach aims to balance financial returns with positive impact on society and the environment and considers risks and opportunities related to ESG factors.

Sustainability is an important aspect of investment management that should be considered from the moment a company's products or services are deployed on a global scale. It does not mean that all investments must be sustainable, but rather that companies should ensure their investments will be sustainable at some level if they want to reach their goals.

Sustainability is increasingly becoming a part of investment management. Investors are actively preparing themselves for the future of sustainability in investment management, as it becomes an integral part of their practice.

What does the future of sustainability in investment management look like in 2023?

In 2023, the integration of ESG factors in investment decisions is becoming increasingly crucial, as their long-term economic impact is being widely recognized. The future of sustainability in investment management is shifting from ideas to reality that impacts all investment portfolios. According to According to a report of CFA Institute, the progression of sustainable investing can be described through the acronym "IDEA":

• I - Influences: The growing demand for sustainable investing and future projections.

• D - Drivers: How investment organizations are evolving to meet the expectations of sustainable investing.

• E - Enablers: The necessary changes in investment organizations' operating and people models to support sustainable investing.

• A - Actions: A framework for investment organizations and professionals to support the growth of sustainable investing.

The mainstreaming of ESG investing is underway, driven by increasing demand and the impacts of the COVID-19 pandemic. Investors are realizing the financial and material importance of social factors, leading to a shift towards considering ESG in investment decisions. The pandemic has also highlighted the need for systemic thinking and the interconnectivity of all factors, making sustainability an even more pressing issue in investment management.

ESG compliance in investment decisions is becoming increasingly crucial

Future of sustainability in investment management from ideas to reality

The future of sustainability in investment management is shifting from an ideal to a reality. Sustainability in investment management is a major trend in the market, with nearly all large, international financial institutions showing a strong commitment to it. There are many reasons for this, including growing pressure from regulators and investors for more efficient and less polluting returns, as well as a desire to be seen as genuine stewards of the environment.

Here are some remarkable factors of future of sustainability in investment management from ideas to reality:

• Fintech and Sustainable Investing: Fintech can greatly enhance sustainable investing, particularly through access and analysis of alternative and soft data. The increase in data availability allows for customized sustainability objectives, the discovery of new investment opportunities, and improved impact measurement.

• Parallel Worlds of Sustainability and Investing: Consumers' growing preferences for sustainable products are also evident in their investments, and there may be movements to drive change in environmental and social issues by exerting influence on finance and business.

• Low Returns and Sustainable Investing: The low investment returns environment could pose a challenge for underfunded pension plans to increase their commitment to ESG investing if there is a perception of a trade-off in returns. On the other hand, private assets in renewable energy, energy efficiency, and resource scarcity may benefit from the pursuit of alpha.

• Purposeful Capitalism in Investing: Investment organizations can take a proactive approach in solving global problems while maintaining a focus on materiality. There is a growing emphasis on overall returns on capital, regulators are increasing their attention to sustainability and impact, and asset owners are collaborating and exerting more influence.

• Climate Energy and Investing: Regulatory frameworks are emerging to support the development of carbon pricing regimes, providing transparency, liquidity, and ease of access. Investment organizations are taking carbon prices into account, and climate risk management becomes a differentiating factor. Climate considerations are increasingly integrated into wealth management, retail, and defined contribution contexts, following the lead of institutional investors. Investment professionals are deepening their understanding of climate risk resilience and mitigation.

• Social Status and Investing: Innovations in transparency and reporting are seen as social factors become better defined and measured. Comparisons between organizations on previously hidden areas of operation are possible. Social media is increasingly influential in highlighting corporate conduct, and alternative data sources add further information for assessments of the softer aspects of corporate behavior.

Future of sustainability in investment management from ideas to reality

Sustainability in investment management has been a hot topic, both as an academic field and a corporate concern. It has led to increased scrutiny of financial firms' environmental policies and practices, raising questions about their commitment to meeting or exceeding regulatory requirements for carbon emissions, water use and other factors.

The future of sustainability in investment management is about to adopt a more positive approach. This includes by reducing the impact of risk on our clients, engaging with stakeholders and communities and increasing the range of opportunities for responsible investing.

Growth in sustainable investing requires investment organizations to optimize their operating and people models. Sustainable investing requires a strong foundation in operations and human resources, with technology playing a crucial role in support. The investment management industry must enhance its organizational and human processes to effectively implement sustainable investing practices.

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