Sustainable investing has come in for a great deal of criticism of late.
The fall from grace has been spectacular: some ESG-labelled funds have invested in companies with significant exposure to Russia, questions have been raised about how to balance energy security and affordable prices with the green energy transition, and there has been debate about the role of defence companies in sustainability-focused portfolios.
However, none of this means that we should abandon the approach altogether, as some critics would argue. This criticism has ultimately stemmed from two core challenges, both of which are material but which have nevertheless been overplayed.
First, as a relatively new field, sustainable investing suffers from a lack of commonly agreed standards and metrics as to what represents best practice. This means that to some extent, the ESG profile of a company is at least partly in the eye of the beholder.
However, I think this debate risks missing the wood for the trees. No, we do not have a perfect, universally agreed framework to score companies on sustainability. However, neither is there universal agreement in the market on whether a certain stock is a buy or a sell.
The other challenge the industry has been navigating in 2022 is ongoing shifts in the broader investment landscape. Higher interest rates, inflation and energy prices have all presented challenges.
However, in uncertain times, it is easy to lose sight of the fact that most of the long-term global sustainability trends remain unchanged, and in many cases, strengthened or accelerated.
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