It is time to invest in our planet. Literally

By being more intentional with our investments today, we can help secure a better future for our world and the future generations who will call it home.

The Sustainability Summit Africa conference in Johannesburg this week serves as a crucial platform for stakeholders to tackle pressing sustainability challenges, driving positive change and fostering a more sustainable future for Africa.

At the heart of the conference discussions lies a unifying theme: the urgent need to make tangible investments in our planet. However, the concept of investment takes on diverse meanings for different individuals, whether it involves adopting sustainable lifestyles or nurturing the growth of young trees that will transform into flourishing forests, providing a gift to future generations.

But there’s another way that we, in the finance industry, can approach it – and that is literally.

ESG investing – which stands for “environmental, social, and governance” – is an investment philosophy that encourages people to do more with their investments than just make more money. It recognises that finance doesn’t operate within a vacuum and encourages investors to keep environmental, social and governance factors top of mind when deciding which companies to invest their money in.

While the idea of responsible investing has always existed, ESG became a more conscious, official philosophy with the introduction of the United Nations-backed Principles of Responsible Investing guidelines.

Since then, ESG has taken off in a way that it never had before, particularly with millennial investors who are looking to align their investment strategy with their values. Towards the end of last year, Nasdaq reported that 90% of millennials were interested in sustainable investments and a third often or exclusively used investment products that take ESG factors into account. Gen Z looks set to follow suit, with 19% of them adopting the same philosophy, while Gen X lags at 16% and only 2% of baby boomers reported prioritising ESG investing.

There is often a perception among older generations that millennials and Gen Z don’t understand the “real world” and some may be tempted to dismiss their interest in ESG investing as another idealistic whim. Another point of view is that these investors, who are no longer that young – millennials are entering their 40s and becoming the driving force of the global economy – are adopting a savvy, long-term outlook and investing in their own future by investing in the planet.

ESG means looking deeper than the bottom line when evaluating whether a company is a worthwhile investment, by asking questions like, how well do they treat their staff and the communities they do business in? How transparent are they around issues like shareholder rights and executive pay? What is the impact of their business on the environment – and what measures have they put in place to lower their environmental footprint?

We live in a world with other human beings, on a planet that we share with other living creatures and our survival as a species is dependent on the health of the ecosystem in which we exist. ESG investing is an acknowledgement that the decisions we make around which companies to support, and grow will have wider-reaching consequences than our own financial returns. That being said, adopting an ESG investment philosophy does not mean forgoing financial returns.

Win-Win Situation
Critics might argue that ESG investing comes at the expense of financial returns. However, I would argue that investing in the planet and investing for financial returns are both long-term investments in a better future. What’s more, the two are not mutually exclusive.

One can never guarantee returns with any type of investment, but one can make educated projections based on past performance, and the data around ESG investing are more favourable than critics might expect.

Together with MSCI, a global leader in investment research, Old Mutual created an ESG Ratings Scale – a platform that measures the ESG characteristics of portfolios so that planners and clients can assess portfolios at a glance, without having to do in-depth research of their own.

The financial performance of companies with higher ESG scores has proven to be better than those with low ESG scores. What’s more, companies with high ESG scores have shown resilience during times of crisis – during the Covid-19 market crash in 2020 companies with high ESG scores delivered better returns than those with low ESG scores.

Amplifying our Impact
Leverage is a term that’s often used in financial circles when it comes to maximising financial returns. By choosing to be more intentional around our investments, we can use the principle of leverage to maximise the positive impact that we, as individuals, can have on the planet as well.

Supporting the call to sustainable living, say, by joining a beach or river clean-up is a wonderful way to see an immediate result, but that result will be short-lived. And, yes, as good as it feels in the moment, it can be disheartening when one considers how small that action is in the greater scheme of the environmental challenges our planet faces.

However, when we choose to switch to a more sustainable investment philosophy, we’re joining forces with millions of other conscious investors around the world and compounding our efforts. It’s through that kind of global mass action that we, as individuals, can drive real, lasting change on a big scale.

In today's world, the imperative to literally invest in our planet has become more crucial than ever before.