Principal Global Sustainable Growth Fund
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Sustainable investing has become increasingly mainstream in recent years. Despite the growing consciousness, however, misconceptions still exist.
What Is Sustainable Investing?
Many mistake sustainable investing to be simply investing for the good of the environment; however, it is more than that. Sustainable investing is an investment approach that also focuses on sector-leading companies in two other key areas – social and governance – alongside the environment, to improve long-term returns. Together, these three areas are known as “ESG” – Environmental, Social and Governance.
A Growing Demand
With growing consciousness around issues like climate change and social inequality, investors are increasingly trying to see how they can impact the people and the planet positively through their investments. This has contributed to growing demand for sustainable investments.
Global Investor Studies conducted by Schroders found that
77%
of people wouldn’t invest against their personal beliefs
57%
of people will always consider sustainability factors when selecting an investment product
60%
believe their individual investment choices can make a difference to building a more sustainable world
Source: Schroders Global Investor Study 2019 and 2020
While it is often believed that millennials are most engaged with sustainability issues, the same Studies found that this trend cuts across the board, and is important to investors both young and old. Notably, Generation X is leading the charge.
Source: Schroders Global Investor Study 2019, global results. Millennials (18 – 37); Gen X (38 – 50); Baby Boom (51 – 70); Silent Gen (71+). Percentages may not add up to 100% as they are rounded to the nearest percent. For illustrative purposes only.
This is already a revolution that we are witnessing at present, with total assets in sustainable investments more than doubling since 2012. Much of this increase is seen in countries like US, Japan and Europe, with demographic shifts and rising regulatory pressures being key driving forces.
Total assets in sustainable investments
2012
US$13.3 trillion
2020
US$35.3 trillion
Source: Global Sustainable Investment Alliance Biennial Review dated May 2021 reporting data as at 31 December 2020. For illustrative purposes only and does not constitute to any recommendations to invest in the above-mentioned countries.
*Europe and Aus/NZ have enacted significant changes in the way sustainable investment is defined in these regions, so direct comparisons between regions and with previous versions of this report are not easily made.
The revolution doesn’t stop here. In fact, the increasing demand for sustainable investing is accelerating in pace, with investors globally expecting to allocate more into sustainable investments over the next several years.
Global Growth Over The Last Five Years And Looking Ahead To The Next Five Years
Source: Schroders Institutional Investor Study 2020. Past growth refers to % answered “increased” to “over the last five years how have your organisation’s allocation to sustainable investments changed?” Future growth refers to % answered “somewhat more important” or “significantly more important” to “how do you expect the role of sustainable investments to change in the next five years”.
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A Focus On Sustainable Companies
The Fund identifies businesses that prioritise sustainability issues, which in theory should be better performing due to fewer controversies and occupational mishaps, greater loyalty from employees, customers and stakeholders, and often more conservative balance sheets.
Evidence of the above is encouraging. During the onset of the Covid-19 pandemic, sustainable companies have been more resilient with the top 20% ESG-ranked stocks outperforming the broader US market by over 5 percentage points (purple line). Interestingly, this outperformance is not only true for certain sectors where ESG stocks are more likely to be found such as consumer staples and healthcare, but instead also persists on a sector-adjusted basis (green line).
Source: Sustainalytics, FactSet, BofA US Equity and Quant Strategy, 25 March 2020. For illustrative purposes only. Past performance is not a guide to future performance and may not be repeated.
These demonstrate the buoyancy that sustainable stocks display through crises, and hence are better placed to sustain supernormal growth and returns over the longer term.
Investment Team Capabilities
A collaboration between specialists of global equity and sustainable investing, the Target Fund is managed by Schroders' Global Sustainable Growth investment team with strong expertise in managing the complexity of sustainable investing.
Source: Schroders, July 2021 unless otherwise stated.
1. PRI, 2015, 2016, 2017, 2018, 2019 and 2020 Assessment Reports.
Equipped with an arsenal of proprietary ESG tools, the investment team is able to enhance their stock-picking process and identify the truly sustainable businesses, apart from what the balance sheets tell us.
Proven Track Record
A focus on identifying truly sustainable businesses coupled with deep investment team expertise helped contribute to the Target Fund’s strong 3-year track record, outperforming both global equities and its local peer.
Source: Morningstar, Schroders, as at 31 July 2021, in USD. Target fund is represented by Schroder ISF Global Sustainable Growth Fund A Shares. Inception date – 23 November 2010. Global equities is represented by MSCI AC World Index. ©Morningstar 2021. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
For illustrative purposes only and does not constitute to any recommendations to invest in the above-mentioned security/sector/country.
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