Sustainable Equities Boutique

Evolution of Sustainable Investing and the case for integration

White Paper

In this paper, we observe the growing interest in Sustainable Investing globally and put particular focus on the trends in this space in the Nordics. Overall, Sustainable Investing is moving forward from its basic focus on screening to more applied approaches that integrate non-financial, ESG data into the investment case. The boom in Sustainable Investing correlates with burgeoning evidence of its positive impact on financial performance. Yet, sceptics question whether sustainability can really add alpha to portfolio returns.

We look at the weight of academic argument addressing this traditional perspective and observe that a skilful approach is needed to successfully practice ESG Integration in order to overcome potential downsides. In fact, there is strong evidence that shows ESG Investing has greatest impact in emerging markets – part 2 sheds light on the reasons and implications for practitioners of ESG Investing in EM developing countries.

Part 1 starts with an overview of the different types of Sustainable Investing and then looks at the trends in how it is applied across the Nordics. The region has long been ahead of the curve on sustainably orientated investing. Using the results of the latest Nordic Investor Survey, part 1 looks at how those investment trends are shifting and concludes with a look at the panoply of views on ESG Integration. Overall, it seems the Nordics are poised to move forward with a more integrated and actively managed ESG investment approach but are seeking guidance on how to best navigate this space.

Part 2 elaborates on strategies to deploy ESG Integration. Following a look at the academic supports for Sustainable Investing, the paper goes on to describe in detail how one approach to ESG Integration (developed by Vontobel mtx) is implemented. The positive, longterm results of this approach are then reviewed as well as alternative approaches within this space. The strategy of Vontobel’s mtx boutique might be regarded as a more "Integration light" approach when compared to others as it deliberately seeks to avoid the shortcomings that can arise from more progressive methods for deeper integration. The paper gives some guidance on key issues to be aware of with this type of investing.