A Primer on Sustainable Investing

The investment management industry has seen a rapid rise in investor interest in sustainable investing strategies. Alongside this growth in capital has come an expanding list of terminology, products and strategies, and data for investors to sort through.

Fiduciary Trust International recently hosted a live webinar titled “Introduction to Sustainable Investing” as a primer to help investors better understand the terms and trends in order to make informed decisions with their capital.

What is Sustainable Investing?

Sustainable investing is an umbrella term Fiduciary Trust International uses to describe the full range of investment activity that occurs between traditional investing, where an investor is focused solely on financial considerations, and philanthropy, where one is exclusively focused on solving for social and environmental issues.

Fiduciary Trust International breaks the sustainable investing landscape out into three main categories:

Values- Driven Investing: Values-driven investing is the practice of avoiding exposure to businesses or industries that conflict with one’s values or worldview.

ESG Investing: Environmental, social and governance (ESG) investing involves the use of ESG data and analysis to inform the investment decision-making process. ESG data is useful, not only in identifying companies to avoid, but also in identifying companies to own.

Impact Investing: Values-driven and ESG investing primarily help investors ensure their portfolios are aligned with their values and investment views. Impact investing goes a step further and involves the use of capital to affect positive, measurable change in the world, while also generating a financial return.

Sustainable investing overall is compatible with building an investment portfolio that is return-oriented. Each of these three types of sustainable strategies can be used alone or in combination to achieve an investor's particular investment objectives, as well as their sustainability objectives.

Why Has Sustainable Investing, particularly ESG Investing, Experienced Significant Growth?

There are several trends that point to the rising appeal of ESG investing

Reporting. The growing popularity of reporting on sustainability by companies contributes to the growth of ESG investment strategies. As the metrics and the availability of reporting data increases, so too has the use of that data by investment managers.

Millennials. One of the trends that is especially powerful is millennials’ interest in the space. As this generation enters its peak earnings years and begins to assume the role of stewards for their families' wealth, their viewpoints have a material impact on demand for ESG integrated investments.

Performance. Recent performance trends have been strong for ESG investment strategies. Last year, ESG investment strategies tended to outperform their traditional peers, both when the pandemic led to a market decline, and in the subsequent rebound.

What Impact Does ESG Integration Have on Performance?

There is a growing pool of research confirming that ESG is not return sacrificing. In fact, it may even produce less risk. It is important to note that studying the relationship between ESG and returns is challenging because every investment manager uses ESG data in a different way. Their choices about which categories of ESG data to consider, how much weight to place on ESG analysis, and the role it plays in portfolio construction all influence a strategy’s return profile.

Can Sustainable Investing Practices be Incorporated into Trust Portfolios?

There are numerous opportunities for clients to incorporate sustainable goals alongside financial objectives. Fiduciary Trust International beliefs is that when sustainable investing is integrated into fundamental analysis for long-term financial success, this approach aligns with the guiding principle of fiduciary duty to clients within the context of trusts.

To learn more about sustainable investing, Fiduciary Trust International’s approach to ESG integration, please view a replay of webinar, “Introduction to Sustainable Investing,” here.

About Fiduciary Trust International

Fiduciary Trust International, a global wealth management firm headquartered in New York, NY, has served individuals, families, endowments and foundations since 1931. With over $99 billion in assets under management and administration as of June 30, 2021, the firm specializes in strategic wealth planning, investment management and trust and estate services, as well as tax and custody services. The New York-based firm and its subsidiaries maintain offices in Coral Gables, FL, Boca Raton, FL, St. Petersburg, FL, Radnor, PA, Lincoln, MA, Los Angeles, CA, San Mateo, CA, San Francisco, CA, Washington, DC, Wilmington, DE, and Reston, VA. For more information, please visit fiduciarytrust.com, and for the latest updates, follow Fiduciary Trust International on LinkedIn and Twitter: @FiduciaryTrust.

About Franklin Templeton

Franklin Resources, Inc. [NYSE:BEN], is a global investment management organization with subsidiaries operating as Franklin Templeton and serving clients in over 165 countries. Franklin Templeton’s mission is to help clients achieve better outcomes through investment management expertise, wealth management and technology solutions. Through its specialist investment managers, the company brings extensive capabilities in equity, fixed income, multi-asset solutions and alternatives. With offices in more than 30 countries and approximately 1,300 investment professionals, the California-based company has over 70 years of investment experience and over $1.5 trillion in assets under management as of August 31, 2021. For more information, please visit franklintempleton.com and follow us on LinkedIn, Twitter and Facebook.