At Allianz Global Investors, we define Sustainable Investing as a broad investment category that incorporates Environmental, Social and Governance (ESG) factors into investment decisions as a means to better manage risk and potentially enhance long-term returns. With two decades of experience in Sustainable Investing, we believe that ESG factors represent a true evolution of the investment playbook and are now an indispensable tool for helping investors aim for both better financial and social outcomes.
As a broad category, Sustainable Investing covers a number of investment strategies, each with distinct traits that affect how portfolios are constructed, the degree to which philosophical views are expressed, and the extent of social impact. We see Sustainable Investing as falling mainly into three wide-ranging groups: Integrated ESG, Sustainable and Responsible Investing (SRI), as well as Sustainable Development and Impact Investing.
At AllianzGI, we believe environmental, social and governance factors are essential drivers of investment returns. Integrated ESG incorporates ESG factors into every aspect of our investment process, across all asset classes, in order to better manage risk and potentially improve investment returns.
These strategies integrate ESG factors into every investment decision in an effort to identify ESG-related risks, especially tail risks, thereby enhancing portfolio risk management and potentially improving long-term investment performance.
Based on this risk analysis, our investment professionals are free to invest in the full, unconstrained universe of securities—provided they demonstrate a complete understanding of material ESG risks.
Central to our Integrated ESG philosophy is the concept of active stewardship, or engaging with management of portfolio companies to discuss how they manage ESG-related tail risks.
Two decades of empirical performance data show that avoiding large portfolio drawdowns through ESG risk management can contribute to better risk-adjusted returns.¹
In the coming years, we believe ESG factors will also help drive investment returns. We expect that markets may increasingly reward companies with the highest ESG standards—and could likewise penalize companies that don’t embrace such standards. Already, our research suggests that companies with high ESG ratings can deliver greater shareholder value.²
Investing sustainably is not just a matter of doing good, but rather it is—more than ever—a matter of doing good business; socially, environmentally, ethically, and especially for potential portfolio returns.
That's Integrated ESG, and it is part of our firm's DNA.
Investors today increasingly realize that they have the power to make a difference in the world by choosing where and how to invest their funds. Investors who want their portfolios to reflect their values—while still seeking positive financial outcomes—can express those goals by investing in Sustainable and Responsible Investing (SRI) strategies.
Our SRI strategies assess corporate ESG practices to create both inclusionary and exclusionary portfolios designed to deliver sustainable returns, measured in both financial and social/environmental terms.
Investing in these strategies goes beyond aligning with your philosophical views. In fact, in many instances, they represent unique growth investing opportunities. For example: Key long-term trends—such as an ongoing change in the energy mix, the need to address climate change, and large advances in technology—have now combined to create a strong engine of growth for both business and investment opportunities, especially in renewable energy.
SRI strategies aim to promote the sustainability efforts of portfolio companies and, thereby, could be reflected in the portfolio's investment returns.
These strategies use an assessment of environmental, social and governance risk not only as analysis but as integral part of the investment process and of the resulting portfolio construction.
By doing so, SRI strategies seek to reflect the values of the investor.
Investing with sustainability goals in mind allows investors to influence how global economies work or how a company behaves through the allocation of capital. It can drive innovation by channeling money towards new technologies, reinforce positive behavior by rewarding good practices and impact the economic value chain.
It's worth stressing that these strategies are not just about doing good: Empirical evidence shows that incorporating ESG factors into investment decisions can help lower portfolio risk and contribute to better risk-adjusted return potential.3
A growing number of investors want to use their funds to improve society or make a positive impact on the environment. Investors who want their portfolios to make a particular societal impact—while still seeking positive financial outcomes—can express those goals by investing in Sustainable Development and Impact strategies.
Our Sustainable Development strategies invest in enablers of positive change, seeking to add societal and/or environmental value through these investments. These sustainability themed strategies hope to engender positive changes by being aligned with one or more of the United Nations' Sustainable Development Goals.
Our Impact strategies aim for intentional and measurable positive societal and/or environmental benefits alongside financial returns, also aligned with one or more of the UN SDGs.
Sustainable Development strategies are sustainability themed and invest in enablers of positive change in an effort to add societal and/or environmental value. These goals align with one or more of the United Nations' Sustainable Development Goals. For example, an investor hoping to make an environmental impact could invest in companies actively addressing water scarcity and quality issues to improve the sustainability of global water resources—while also potentially generating attractive financial returns.
Impact strategies seek to generate intentional and measurable positive societal and/or environmental benefits alongside financial returns, also aligned with one or more of the UN SDGs.
Investing in Sustainable Development and Impact strategies allows investors to not only generate potential returns with their capital but also reflects the particular mission of an organization while making a positive impact.
Sustainable Development strategies aim to advance one or more of the UN’s Sustainable Development Goals. For example, an investor might buy shares in a technology company creating classroom technology aimed at promoting literacy, fulfilling the goal of “quality education,” or in a wind farm that advances the goal of “affordable and clean energy.” Impact strategies have the payoff of making a measurable environmental and/or social impact, aligned with one or more of the UN SDGs. For example, an investor might purchase green bonds that invest in environmentally friendly projects that help fund the energy transition.
Sustainable Development and Impact strategies can also generate attractive employment opportunities in local communities. For example, renewable energy strategies that adhere to a Responsible Contractor Policy promote fair wages, benefits and working conditions for construction workers engaged in building wind and solar facilities.
As is the case with SRI strategies, it's worth stressing that these strategies are not just about making the world a better place: Empirical evidence shows that incorporating ESG factors into investment decisions can help lower portfolio risk and contribute to better risk-adjusted return potential.4
Visit our Sustainable Ideas page for more insights about investing for financial and social outcomes.
1. How do ESG factors impact portfolio performance? Dr. Steffen Hörter, June 2019.
2. Investing responsibly. ESG in Equities.
3. How do ESG factors impact portfolio performance? Dr. Steffen Hörter, June 2019.
4. Ibid
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