News: Sustainable Investing Gets the Royal Treatment
Prince Harry and Meghan, Duchess of Sussex, enter the land of sustainable investing. Is this different from traditional investing?
Contributing Writer at Tally
November 16, 2021
Since moving to Los Angeles a year ago, ceasing all royal responsibilities, and seeking financial independence, Prince Harry and Meghan, the Duchess of Sussex, have made many big moves.
The royal couple has been busy, to say the least.
The couple has already signed production deals with Netflix and Spotify, and Harry has produced an Apple TV+ series on mental health. He’s also in the process of writing his memoir.
The pair is back in the spotlight, but for a new reason. Now they’re entering the investment business but sustainably. As impact partners, they’re joining Ethic, an asset management company that promotes investing in companies with favorable environmental, social and governance (ESG) track records.
What is Ethic, and what is ESG investing? Let’s take a look.
What is Ethic?
Ethic is one of the many investment companies founded with a mission to engage in ethical investments. Ethic launched in 2015 when its founders decided there must be a way to use their skills in investing while maximizing social impact. From that, Ethic arose as a trailblazer in ESG investing, which combines investors’ desire to build wealth with positively impacting the world.
Like people might choose certain brands that help conserve wildlife, protect the environment, or stand for social justice, Ethic helps investors invest in companies the same way.
What is ESG investing?
Many investors want to get behind companies with values that match their own and are sustainable. The term “sustainable” has many meanings.
ESG investing looks to change this by grading sustainability within three main categories:
Environmental: This includes carbon emissions, air and water pollution, deforestation, green energy, water usage and more.
Social: This covers employee diversity, data security, sexual harassment policies, fair labor practice, pay equality, and more.
Governance: This includes diversity among the board members, political contributions, executive pay scales, in-company corruption, political lobbying, lawsuits, etc.
Using these three categories, a company receives an ESG score that investors can use to determine if they’d like to support that company.
Can ESG investing be profitable?
Limiting your investment options generally isn’t a favorable move, but these sustainable companies could have a lasting impact on the world around us. The big question is whether ESG investing will result in reduced returns.
From 2004 through 2018, sustainable mutual and exchange-traded funds (ETFs) netted returns that were very similar to traditional returns, according to a Morgan Stanley white paper. Additional studies have shown ESG investments outperform traditional ones.
The same white paper also showed ESG investing presented a lower risk, as sustainable funds had a 20% smaller downside deviation than traditional funds. The downside deviation is a value that represents the potential loss from a risk as measured against a minimum acceptable return.
The report also noted that ESGs offer risk protection in times of high stock market volatility. During a significant market volatility period, the median ESG outperformed traditional funds by 1.39%.
So, this research shows that ESGs can be just as profitable as traditional trading, and it also shows ESGs can help mitigate downside and volatility. All this while investing in a company that does good for its people and the environment.
Harry and Meghan’s decision to partner with a sustainable investment company may signal that ESG investing is becoming a more mainstream investment strategy. As with all types of investing, sustainable investing still poses risk, so it’s best to speak with a financial advisor when making investment decisions.