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Democratising sustainable investing

02/05/2019

Sustainability has become a key item on the agenda of governments, institutions, corporates and private investors, large and small. Accordingly, those investors now increasingly want to commit their money to funds that aim to achieve attractive financial returns, at the same time as generating good financial outcome and avoiding harmful effects on society and the environment. In light of that, sustainable investing has developed significantly in recent years, building on decades-old ethical-investing principles, which were typically exclusions-based and often rooted in underlying beliefs.

Over time, a company’s attributes regarding its environmental and social impact or its general approach to good governance, its ESG characteristics, were evaluated and considered alongside its prospective returns. ESG investing covers a range of activities, from applying negative or positive screens to filter investments out or in, to fundamental analysis and engagement with companies. This approach encourages not only avoidance of undesired exposures but also a focus on selecting the best available among the potential candidates for investment. The aim is to identify those companies operating more sustainably and are more capable of adapting to a changing world, where incorporating ESG behaviours is considered business as usual.

More recently, sustainable investing has extended to incorporate consideration of the positive impact or contribution an investment is expected to make. Companies can be assessed on what they are explicitly doing to address the major environmental and social challenges the world is facing, as well as the scale and materiality of that impact. This approach allows investors to build investments in companies delivering not only attractive financial returns, but positive externalities; benefits to society and the environment, too.

In the past, sustainable investing may have been seen as a niche approach, accessible only by large institutional investors. However, it has now moved into the mainstream, and we believe it should be open to all investors, regardless of the amount they invest. The nature of some of the asset classes may make them less accessible for some investors. This may be due to the large scale required for each individual asset or because of limited liquidity. Examples might include green bonds (bonds where the proceeds of their sale are dedicated to sustainable activities) where the universe is relatively small, or green infrastructure, which may be less liquid and involve a longer time commitment. Investing through a fund is likely to allow investors of all sizes the opportunity to gain access and liquidity.

The benefits of adopting a multi-asset approach to sustainable investing

Valuation is key, so taking a multi-asset approach allows an investor to capture value across a wide range of asset classes, diversifying risk at the same time. Access to different types of sustainable investments with different risk/reward characteristics may be able to reduce the overall volatility of returns. This is because one asset class may provide some offset should another asset class suffer from market weakness.

In addition to mitigating the financial risks, providing the broadest potential universe of accessible asset classes may also increase the overall sustainability of the portfolio from an ESG and impact perspective. For example, compared to equities, green infrastructure may offer a steady income and lower volatility, and do so while also making a positive contribution to renewable energy generation.

M&G Sustainable Multi Asset Fund

The M&G Sustainable Multi Asset Fund’s approach integrates the benefits of diversified asset allocation with a responsible investment approach aiming to deliver attractive long-term total returns, while considering environmental, social and governance factors. This strategy enables investors to align their financial and sustainable goals, providing an ideal opportunity to contribute towards a more sustainable future.

The value and income from the fund’s assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that the fund will achieve its objective and you may get back less than you originally invested.

The fund allows for the extensive use of derivatives.

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The value of the fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise and you may get back less than you originally invested.
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