Rather than explaining the different approaches to sustainable investing, this short article will look at some of the reasons as to why people have chosen either to incorporate sustainable investments or discount them from their personal portfolios.
This article provides generic information, and the contents should not be considered investment advice.
Performance
Sustainable equity funds have gained a lot of attention over the last decade; however, it was during the year 2020 that they outperformed traditional peer funds, and momentum around them was at an all-time high. Over the following few years net inflows into sustainable investments continued to rise overall; however, that momentum slowed, and until recently more traditional investment options have been preferred based on risk and return.
According to recent analysis completed by Morgan Stanley, sustainable funds have made a comeback and outperformed traditional funds in the first half of 2025. Supporters of sustainable investments would argue that the recent resurgence in their performance during a period where the support from important world leaders has been lacking, means that it is now here to stay, and shows great promise for the future.
Measuring the performance of sustainable versus traditional funds is becoming increasingly difficult to ascertain because pension funds and an increasing number of investment managers are beginning to incorporate environmental, social and governance (ESG) criteria into their investment mandates. The lines separating sustainable and traditional investments are becoming more blurred.
Value & Engagement
There has been a shift in recent years towards the importance that investors place on where their capital is allocated. Historically, it didn’t matter where their capital was allocated if profits were achieved. Nowadays, the impact of climate change and its current and future ramifications has shifted some of the focus away from just achieving numbers; what is also important now is how the numbers are achieved.
Amongst individuals there is a growing sense of purpose and emotional engagement linked to their investments when they know their money is contributing towards a more positive future. Choosing sustainable investments can help an investor feel more satisfied and often less guilty, whilst placing a higher overall personal value on their investment decision.
Risk
Historically investors have been discouraged from choosing sustainable investments because there was the real chance that any potential social and environmental benefits gained would come at the cost of reduced investment returns and higher charges. Additionally, ‘greenwashing’ (where a company exaggerates or is dishonest about their sustainable credentials to attract additional investment) has been a real risk in recent years, where a lack of transparency adds an additional level of consideration when selecting investments. In this light, sustainable investments can be viewed as riskier alternatives compared to their traditional peers.
Whilst there is still room for improvement, ESG metrics have now become more standardized and therefore easier to implement for investment funds wanting to do so. This is also helping to remove greenwashing from the investment industry, which is improving the overall investment landscape and allowing investors to make more informed, clearer decisions.
Sustainable investment advocates will assert that the greatest risk of all is in fact not including ESG investments in your initial long-term investment decision. After all, if we are investing for the future, shouldn’t we want that future to be comprised of companies that have a positive impact both environmentally and socially? Shouldn’t we want companies that are misleading, have poor governance and create issues for the environment and society to be phased out of the market?
Summary
Whether you are considering a new long-term investment or reviewing your existing investments, it is important to know that sustainable investments are widely available, and that positive developments in this area over recent years means that they are now a viable option.
As more companies succumb to the governmental, financial and social pressures of increasing their overall sustainability, there is the growing trend that traditional and sustainable investments will become more intertwined. In order to protect your financial future, it is important that sustainable investments now at least make up part of the conversation and are considered for decisions involving long-term investments.
If you are interested in exploring sustainable investments with 3D Global or simply have any questions, please feel free to get in touch via info@3dglobal.com or +357 25828292.