Kieger Sustainable Business: Corporate climate commitments and implications for investors

Like in all active management, strategies pursuing sustainable investing are associated with tracking error versus the broad market. But what are the implications for alpha generation and sustainability outcomes?

A sole focus on exclusions does not provide a good basis for achieving the financial or the sustainability objectives of investors.

With ESG integration, investment analysis explicitly incorporates an assessment of an investments’ resilience in the face of environmental, social and governance factors. This expanded analysis improves the assessment of an investment’s fair value. ESG integration helps investors achieve their financial objective, but does not directly address sustainability outcomes.

A more comprehensive sustainability assessment, includes topics material across stakeholders, and tries to capture the broader environmental and social implications. Investment strategies that make security selection and sizing decisions on this basis – alongside rigorous financial analysis – are best placed to address both the financial and sustainability objectives of investors.

A more extensive discussion on the interplay between the financial and sustainability goals of investors, in the context of return attribution, can be found in the recent Citywire article written by our Head Sustainable Business Strategy, Panagiota Balfousia.