Quantfury Gazette


Sustainable investments

Héctor M Contributor
Inversiones sostenibles

The fight against climate change has become one of the most topical issues, and the financial markets are no strangers to it. Thus, the change of mentality has meant the emergence of new ways of understanding finance and investing. Sustainable investments can be defined as those that aim to make responsible use of the resources we currently have, developing plans and techniques that can be maintained in the future, allowing for greater sustainability. 

These include ESG Funds (Environmental and Social Governance Funds), which focus on businesses whose profitability is linked to environmental, social and good corporate governance criteria. That is, instead of investing in projects with profitability alone in mind, other factors are taken into account, such as the management of natural resources, greenhouse gas emissions or the working conditions of the company’s employees. 

Funds whose portfolios incorporate ESG criteria have multiplied over the last decade, and their historical maximum of inflows was reached last 2021 with over $100 billion dollars. 

Some of the companies with the best ESG ratings are Microsoft Corp (NASDAQ: MSFT), Linde PLC (NYSE: LIN), Accenture PLC (NYSE: ACN), JB Hunt Transport Services (NASDAQ: JBHT) or Xylem Inc (NYSE: XYL). To give specific examples, it is worth highlighting the case of Microsoft, which has committed to having a negative impact on CO2 emissions by 2030, to the point of having offset all the emissions that the company has emitted since its founding almost 50 years ago by the year 2050. For its part, J.B. Hunt has announced its intention to convert 25% of its fleet’s daily consumption to alternative fuels, such as electricity or hydrogen, by 2035. 

However, what do we, as investors, gain from looking for companies with a sustainable profile? Well, on the one hand, companies that follow this practice considerably reduce the risk of fines and certain legal problems and facilitate their access to public financing. On the other hand, they improve their reputation, create a brand image, and increase transparency and trust in management. In other words, regardless of the socio-environmental aspect, following ESG criteria is positive on many levels. 

Proof of this is the multimillion-dollar investment of practically all oil companies in green marketing and decarbonization policies, being companies that are, in principle, negatively affected by this change of mentality. Among them, Range Resources Corp (NYSE: RRC) stands out, which has the banner of being the company with the lowest greenhouse emissions among its group of competitors. Even the Australian oil and gas company Santos Ltd (ASX: STO) has also announced its intention to be a zero net CO2 emissions company by 2050.

Finally, as a direct consequence of these variables, there is a greater attraction of capital, thus multiplying the assets managed in funds with sustainability criteria. In this context, it is difficult to say that sustainable investments are a passing fad or a bubble, especially considering the correlation between their economic performance and their adherence to good governance criteria. This fact can well be seen in the historical series, which since 2013 shows a better performance of ESG Funds, with the largest difference between both yields being computed in 2022, according to MSCI data. Likewise, this is the opinion of a very broad sector of managers and experts, who foresee an even greater growth of this type of investment in the future. 

In conclusion, ESG funds are here to stay, and investments with sustainability criteria have not only ceased to be a curiosity to become a present reality but, with the data in hand, it seems that they also have a great future.


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