Impact investing and sustainable investment solutions are becoming more and more popular on Wall Street.
But there is a misconception that these solutions, which consider the environmental and social impact of investments, are not focused on getting the most return on investors’ capital.
Derek Bingham is the head of GS Sustain Americas, Goldman Sachs’ US “research product team focused on global quality.”
Bingham’s team seeks to identify the sustainability measures that best align with returns in the long term. He said the belief that sustainable investments known as ESGs, which stands for “environmental, social, and governance,” were tied to underperformance, or were useful only to dedicated specialists, had kept some folks from pursuing them.
“The roots of ESG investing came from ESG specialists,” he said in a recent discussion on Goldman Sachs’ podcast, “Exchanges at Goldman Sachs.” “Folks that wanted to invest behind a certain set of values, wanted to focus on the ESG aspects of their companies.”
“And as a result of that emphasis, rightly or wrongly, got a reputation perhaps of underperformance,” he added.
But Bingham sees this as a shortsighted view. In a recent report titled “The PM’s Guide to the ESG revolution,” Bingham and a team of analysts outlined how investors who consider things such as diversity, emissions, and other sustainable indicators are the ones positioned for success.
“We increasingly think mainstream investors gotta realize that this is more information, again, that they didn’t have already,” he said.
“And it’s just part of, to kind of silo it into: OK, well, I’m a fundamental stock researcher, or I’m actually an ESG stock researcher — those shouldn’t be two different things,” he added. “It’s all part of the same holistic view of a company.”
That’s because this information can be used to gauge a company’s risk and identify firms positioned for success. For instance, according to the study, environmentally friendly companies tended to outperform:
“Low emitters based on total greenhouse gas (GHG) and scope 1 emissions generally outperformed across our framework, logging 3.1% alpha in relevant sectors, though results were mixed for Manufacturing sectors.”
Companies with better gender diversity also outperformed:
“Companies with higher levels of female employees have seen average annual alpha of 3.3% across all sub-sectors within our framework.”
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