8.2 Motivation for Sustainable Investments

While positive contribution towards sustainable development may be seen as a benefit of investments itself, impact investing still remains a niche. Typically, investors adopt sustainable investing practices with financial performance in mind to optimize the risk-return profile, while not necessarily accepting lower returns in exchange for impact. Stocks with good ESG ratings may perform just as well as or even better than their peers in the market, often with less volatility, but recent years have also shown underperformance. In general, this is also a question of time-horizon, where sustainability investors adopt a more long-term perspective. A global study of institutional investors shows a certain mismatch between investors and companies; while 78% of investors stated that they would make business-relevant ESG investments even if this reduced their profits in the short term, only 55% of companies were willing to do so. This is probably due to the perceived pressure from short-term-oriented investors and sell-side analysts in the context of quarterly reporting. This perspective is particularly prevalent in North America, especially in the US. At the same time, many investors are concerned about companies cherry-picking and only disclosing ESG information very selectively. In the opinion of 80% of the investors surveyed, many companies are unable to convincingly explain the reasons for a long-term investment in sustainability, with the available ESG disclosures only being of limited assistance in decision-making.³

Investors continue to pay attention to the issue of climate change, one of the most urgent challenges of our time, and they analyze their portfolios’ exposure to physical and transition risks. This also includes seizing opportunities, applying robust climate scenario analyses, and aligning with net-zero targets through ambitious decarbonization strategies. Health and safety, security, diversity and inclusion, human rights, and labor issues are just as much a part of a balanced ESG debate as energy and emissions, water, and biodiversity.