Sustainable investing has become mainstream, but it’s not a perfect science, with many challenges that practitioners must face. In the first of our new series of SI Dilemmas, Rachel Whittaker, Head of Sustainable Investing Research, outlines one of them – whether to put greater emphasis on the environmental or social factors.
The Sustainable Development Goals (SDGs) are described as “a shared blueprint for peace and prosperity for people and the planet”, placing humanity at the heart of the sustainable development. Social goals slightly outnumber environmental goals, as well as appearing earlier in the sequence. Yet sustainable investors could be forgiven for thinking that solving environmental issues is a higher priority than solving social issues.
The majority of SI strategies still take a wide range of environmental, social and governance (ESG) issues into account. As the market for sustainable and impact investing has matured, environmental topics such as climate change, water scarcity, ocean health and biodiversity are now receiving a much higher share of investor attention compared to social issues such as human rights, workplace conditions and access to finance, education and healthcare.
For example, a quick search of one of the numerous databases of sustainable and ethical strategies reveals a typical pattern: 12% focussed exclusively on environmental issues and just 3% exclusively on social issues.1 The pattern is not new – MSCI launched its first environment themed equity index in 2009 – but it was 2016 before an index focussed on social issues (the Women’s Leadership index) appeared in its ESG index family.2
In the bond market too, the first ‘official’ green bond was issued in 2008 (by the World Bank), with proceeds committed solely to environmental projects. The International Capital Markets Association (ICMA) introduced the green bond principles in early 2014. Although social bond guidelines followed just two years later, the volume of green bonds dwarfed that of social bonds until 2020, when social bond issuance finally took off (buoyed by the Covid-19 pandemic). Green bonds continue to make up the majority of assets in the combined green/social/sustainability bonds market.3
There are various theories for the popularity of environmental investments compared with social. It can be argued that environmental problems, such as emissions or water use, are easier to define and measure than social issues such as health or well-being. This makes it easier for sustainable investors to incorporate environmental data in a systematic way into their investment processes. It can also be easier to identify investable technical solutions for many environmental problems, while solutions to social problems may rely more on behavioural changes, and the definition of success can vary between different cultures. This makes the environmental factor a popular topic for thematic investors with an interest in product impact, particularly when there is a political support for green industries.
Yet, while we can argue that investors might be driven by the pursuit of returns, it is harder to make that argument for regulators. SI regulation has proceeded faster for environmental investing than for social. Despite the long history of SI focussing on a range of ESG issues, work on the EU Sustainable Taxonomy began in 2018 focusing almost exclusively on environmental issues, with social issues relegated to a brief mention of meeting minimum standards on human rights. Work on a Social Taxonomy finally began in 2021. Ongoing discussions about whether the taxonomies should be separate or combined illustrate that even the experts are struggling with the same question that all investors face – how to balance all of the issues competing for our attention?
Nevertheless, some social themes are quietly gaining momentum, even as environmental themes hog the limelight. Gender equality has been rising in importance over the last decade as an investment theme, from just five focussed public markets strategies in 2012, to over 50 in 2019, and total assets under management of USD 11 billion by the end of 2020.4
Recently, the gender lens investing community has begun to look closer at the interconnectivity of gender equality with environmental challenges. Investors have been asking whether an investment or impact strategy focused on gender equality is truly meeting its goals if it does not also address the climate-related inequalities.5 The United Nations recognised the link between gender equality and climate change more than a decade ago.
Women and girls are often more vulnerable to the effects of climate change, as they form a large proportion of the world’s poor, and are more likely to be dependent on local natural resources that are impacted by climate change. They are less likely to be involved in decision making, have fewer financial resources to fall back on, are and more likely to be responsible for domestic needs such as clean water, food and fuel. All of these issues will be made more difficult by climate change, particularly in developing countries. However, the latter responsibilities also makes women critical participants in adopting the lifestyle changes necessary to adapt to a changing environment.6
This interconnectivity between E and S exists across the entire scope of sustainability challenges. The worst effects of climate change will be disproportionately borne by the poorest in society; good health for all cannot be achieved without understanding that climate change and access to clean water affect patterns of disease. Likewise, eradicating hunger is inextricably linked with managing the impact of climate change and biodiversity on agricultural productivity. Trying to entirely disaggregate E and S issues and weigh up their relative importance could ultimately be a distraction from the goal of driving positive change and identifying attractive investment opportunities.
Examining our investment choices through a specific E or S lens can help investors to align with particular set of values or goals. But an effective investment or impact strategy must acknowledge that no sustainability challenge or opportunity can be tackled in isolation. Sustainable investors can also play a role in ensuring that an adequate focus on social challenges remains high on the agenda of companies, regulators and governments, through voting, engagement, and involvement in financial industry initiatives.
1 Fund EcoMarket
5 Biegel, S. & Lambin, S. Gender & Climate Investment: A strategy for unlocking a sustainable future (2021)
The contents of this document have not been reviewed by the Securities and Futures Commission ("SFC") in Hong Kong. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has been distributed by Robeco Hong Kong Limited (‘Robeco’). Robeco is regulated by the SFC in Hong Kong.
This document has been prepared on a confidential basis solely for the recipient and is for information purposes only. Any reproduction or distribution of this documentation, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accepting this documentation, the recipient agrees to the foregoing
This document is intended to provide the reader with information on Robeco’s specific capabilities, but does not constitute a recommendation to buy or sell certain securities or investment products. Investment decisions should only be based on the relevant prospectus and on thorough financial, fiscal and legal advice. Please refer to the relevant offering documents for details including the risk factors before making any investment decisions.
The contents of this document are based upon sources of information believed to be reliable. This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
Investment Involves risks. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance.
Please read this information carefully.
This website is prepared and issued by Robeco Hong Kong Limited ("Robeco"), which is a corporation licensed by the Securities and Futures Commission in Hong Kong to engage in Type 1 (dealing in securities); Type 4 (advising in securities) and Type 9 (asset management) regulated activities. The Company does not hold client assets and is subject to the licensing condition that it shall seek the SFC’s prior approval before extending services at retail level. This website has not been reviewed by the Securities and Futures Commission or any regulatory authority in Hong Kong.
2. Important risk disclosures
2. Important risk disclosures Robeco Capital Growth Funds (“the Funds”) are distinguished by their respective specific investment policies or any other specific features. Please read carefully for the risks of the Funds:
3. Local legal and sales restrictions
The information contained in the Website is being provided for information purposes.
Neither information nor any opinion expressed on the Website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. The information contained in the Website does not constitute investment advice or a recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, most recent annual and semi-annual reports, which can be all be obtained free of charge at www.robeco.com/hk/en and at the Robeco Hong Kong office.
4. Use of the Website
The information is based on certain assumptions, information and conditions applicable at a certain time and may be subject to change at any time without notice. Robeco aims to provide accurate, complete and up-to-date information, obtained from sources of information believed to be reliable. Persons accessing the Website are responsible for their choice and use of the information.
5. Investment performance
No assurance can be given that the investment objective of any investment products will be achieved. No representation or promise as to the performance of any investment products or the return on an investment is made. The value of your investments may fluctuate. The value of the assets of Robeco investment products may also fluctuate as a result of the investment policy and/or the developments on the financial markets. Results obtained in the past are no guarantee for the future. Past performance, projection, or forecast included in this Website should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Fund performance figures are based on the month-end trading prices and are calculated on a total return basis with dividends reinvested. Return figures versus the benchmark show the investment management result before management and/or performance fees; the fund returns are with dividends reinvested and based on net asset values with prices and exchange rates of the valuation moment of the benchmark.
Investments involve risks. Past performance is not a guide to future performance. Potential investors should read the terms and conditions contained in the relevant offering documents and in particular the investment policies and the risk factors before any investment decision is made. Investors should ensure they fully understand the risks associated with the fund and should also consider their own investment objective and risk tolerance level. Investors are reminded that the value and income (if any) from shares of the fund may be volatile and could change substantially within a short period of time, and investors may not get back the amount they have invested in the fund. If in doubt, please seek independent financial and professional advice.
6. Third party websites
This website includes material from third parties or links to websites maintained by third parties some of which is supplied by companies that are not affiliated to Robeco. Following links to any other off-site pages or websites of third parties shall be at the own risk of the person following such link. Robeco has not reviewed any of the websites linked to or referred to by the Website and does not endorse or accept any responsibility for their content nor the products, services or other items offered through them. Robeco shall have no liability for any losses or damages arising from the use of or reliance on the information contained on websites of third parties, including, without limitation, any loss of profit or any other direct or indirect damage. Third party off-site pages or websites are provided for informational purposes only.
7. Limitation of liability
Robeco as well as (possible) other suppliers of information to the Website accept no responsibility for the contents of the Website or the information or recommendations contained herein, which moreover may be changed without notice.
Robeco assumes no responsibility for ensuring, and makes no warranty, that the functioning of the Website will be uninterrupted or error-free. Robeco assumes no responsibility for the consequences of e-mail messages regarding a Robeco (transaction) service, which either cannot be received or sent, are damaged, received or sent incorrectly, or not received or sent on time.
Neither will Robeco be liable for any loss or damage that may result from access to and use of the Website.
8. Intellectual property
All copyrights, patents, intellectual and other property, and licenses regarding the information on the Website are held and obtained by Robeco. These rights will not be passed to persons accessing this information.
10. Applicable law
The Website shall be governed by and construed in accordance with the laws of Hong Kong. All disputes arising out of or in connection with the Website shall be submitted to the exclusive jurisdiction of the courts of Hong Kong.