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Sustainable investing Traditional valuation discipline with sustainability - possibilities for value-added returns

Sustainable investing

Sustainable investing has evolved from screening out objectionable investments to a modern approach which seeks to create excess returns by investing in attractively valued companies seen as leaders in their field. Sustainable companies achieve this by proactively creating shared value not only with their shareholders and customers, but often with their employees and the broader society too.

From our standpoint, successful sustainable investing must not see sustainability as a mere box-checking exercise. It has to seek those companies that can consistently generate financial gains for shareholders, in part by approaching environmental, social and governance issues as opportunities to outperform competitors and generate investor value.

Measuring and assessing a company’s competitive edge requires a holistic approach with the aim of having the most complete assessment of intrinsic value possible that considers both tangible and intangible assets.

We believe that combining traditional valuation discipline with sustainability analysis enhances the possibilities for value-added returns. It starts with the valuation of tangible financial data and modelling discounted cash flows to arrive at a security’s intrinsic value. This financial analysis is then combined with measurement and analysis of intangible assets and non-financial (including sustainability) data, such as brand, reputation, supply chain risks, energy efficiency initiatives, health and safety, employee satisfaction, etc.

Do you share the belief that investing in sustainable business models will outperform over the longer term? Then a sustainable investing strategy could serve you well.

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Dinah Koehler, Head of Research for the Sustainable Equities team and Paul Donovan, Global Economist at UBS Investment Bank, assess the economic implications of climate change on the world's middle class.