Sustainable investing has gathered rapid momentum in recent years. This impulse is shifting the goalposts for investments, as investors are increasingly looking for solutions that make an impact alongside financial returns. Asset managers and owners can reach these objectives through active ownership and capital allocation. With active ownership, they can pursue their sustainability goals by voting at shareholder meetings and engaging in constructive dialogue with firms to steer their behavior. They can also vote with their feet, through their capital allocation choices.
Excluding companies, for example ‘sin stocks’, from investable universes is a popular way to make an impact through capital allocation. However, sustainable investing is not limited to negative screening, as it also entails taking larger positions in sustainability leaders. This can be done with the integration of environmental, social and governance (ESG) indicators in investment processes, targeting carbon footprint reductions in portfolios, or aligning investments with the United Nations’ Sustainable Development Goals (SDGs).
Sustainable investing is not limited to negative screening, as it also entails taking larger positions in sustainability leaders
There can be many reasons to divest from unsustainable firms and shift capital towards more sustainable ones. Some investors are content with simply disassociating themselves from certain businesses, such as the tobacco industry, regardless of whether this will have any effect on the actual production and consumption of tobacco products. Others see it as a signaling tool, even though they acknowledge that this approach likely has no direct impact on the related companies. The third and most ambitious reason is to allocate capital in a way that supports sustainable companies and hurts unsustainable ones. This approach can incentivize the latter to improve their corporate behavior.
Our analysis examines how sustainable investing has affected capital flows and the financing needs of companies. In principle, divestment would negatively affect the targeted firm, but this mechanism is actually not so clear-cut. Divesting results in a transfer of ownership from one investor to another, which has no direct impact on the firm. However, divestment may hurt companies indirectly by increasing their cost of capital. With this in mind, we argue that the ultimate impact of sustainable investing on listed companies is best evaluated by examining the primary market, i.e. new issues of bonds and stocks.
In our study, we considered all stocks in the MSCI All Countries World Index over the 2010-2019 period. We classified a company as an equity issuer if its number of shares outstanding increased by at least 10% over the year. Similarly, we categorized a company as a debt issuer if the book value of its debt increased by at least 10% over the year. To distinguish between sustainable and unsustainable businesses, we used a broad range of metrics, namely ESG, carbon footprint and SDG dimensions.
Our analysis showed no evidence that fresh capital flowed more towards sustainable firms than towards unsustainable ones
Our analysis showed no evidence that fresh capital flowed more towards sustainable firms than towards unsustainable ones. More specifically, it appears unsustainable companies faced no obstacles in raising funds in public markets. Indeed, the sustainability profile of equity issuers was generally similar to the broad market, while debt issuers even tended to have a below-average sustainability profile. Moreover, our results were stable over time. Capital did not flow more towards sustainable firms in recent years than before.
Therefore, our results suggest that sustainable investing has not been able to starve unsustainable companies from fresh capital over our sample period. We acknowledge that if sustainable investing continues to grow, it may become increasingly hard for unsustainable firms to obtain fresh funding in capital markets. But how much growth would be needed for that, and whether such a scale is realistically attainable, remain open questions.
To deprive unsustainable companies from fresh capital, sustainable investing needs to become ’business as usual’ in the investment community.
This report is not available for users from countries where the offering of foreign financial services is not permitted, such as US Persons.
Your details are not shared with third parties. This information is exclusively intended for professional investors. All requests are checked.
The Robeco Capital Growth Funds have not been registered under the United States Investment Company Act of 1940, as amended, nor or the United States Securities Act of 1933, as amended. None of the shares may be offered or sold, directly or indirectly in the United States or to any U.S. Person (within the meaning of Regulation S promulgated under the Securities Act of 1933, as amended (the “Securities Act”)). Furthermore, Robeco Institutional Asset Management B.V. (Robeco) does not provide investment advisory services, or hold itself out as providing investment advisory services, in the United States or to any U.S. Person (within the meaning of Regulation S promulgated under the Securities Act).
This website is intended for use only by non-U.S. Persons outside of the United States (within the meaning of Regulation S promulgated under the Securities Act who are professional investors, or professional fiduciaries representing such non-U.S. Person investors. By clicking “I Agree” on our website disclaimer and accessing the information on this website, including any subdomain thereof, you are certifying and agreeing to the following: (i) you have read, understood and agree to this disclaimer, (ii) you have informed yourself of any applicable legal restrictions and represent that by accessing the information contained on this website, you are not in violation of, and will not be causing Robeco or any of its affiliated entities or issuers to violate, any applicable laws and, as a result, you are legally authorized to access such information on behalf of yourself and any underlying investment advisory client, (iii) you understand and acknowledge that certain information presented herein relates to securities that have not been registered under the Securities Act, and may be offered or sold only outside the United States and only to, or for the account or benefit of, non-U.S. Persons (within the meaning of Regulation S under the Securities Act), (iv) you are, or are a discretionary investment adviser representing, a non-U.S. Person (within the meaning of Regulation S under the Securities Act) located outside of the United States and (v) you are, or are a discretionary investment adviser representing, a professional non-retail investor. Access to this website has been limited so that it shall not constitute directed selling efforts (as defined in Regulation S under the Securities Act) in the United States and so that it shall not be deemed to constitute Robeco holding itself out generally to the public in the U.S. as an investment adviser. Nothing contained herein constitutes an offer to sell securities or solicitation of an offer to purchase any securities in any jurisdiction. We reserve the right to deny access to any visitor, including, but not limited to, those visitors with IP addresses residing in the United States.
This website has been carefully prepared by Robeco. The information contained in this publication is based upon sources of information believed to be reliable. Robeco is not answerable for the accuracy or completeness of the facts, opinions, expectations and results referred to therein. Whilst every care has been taken in the preparation of this website, we do not accept any responsibility for damage of any kind resulting from incorrect or incomplete information. This website is subject to change without notice. The value of the investments may fluctuate. Past performance is no guarantee of future results. If the currency in which the past performance is displayed differs from the currency of the country in which you reside, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency. For investment professional use only. Not for use by the general public.