How do You Measure Success with Your Investments?
When evaluating the success of a particular investment, investors have primarily focused on financial performance. Over the last few years, however, there is a growing consensus that non-financial metrics, such as social & environmental impact, are providing an additional layer of determining what success looks like.
Imagine a scenario in which you achieved 6 per cent over 2018. Was this a success? Perhaps. How about if we added that the return was 2 per cent more than the ASX 200 or Dow Jones.
How about if you also knew that your portfolio produced about 50% less carbon emissions than the ASX 200 or Dow Jones and contributed 40% more to the global SDG’s. This meant your investment portfolio, your money was also having a positive impact far beyond your financial return.
As investors, both on an institutional and individual level, it is important that we can each measure our own success in a way that is appropriate to our goals & values, and how it impacts all stakeholders.
How can we do that?
There are a growing number of digital tools which can help us to measure our success as a triple bottom line, considering social & environmental impact in addition to financial performance. They range from some of the more well known providers like MSCI, Sustainalytics, to smaller boutique firms like Sustainable Platform.
Each of them have their own methodologies how they collect and interpret the data. Yet, despite these providers apparently analysing the same data, several studies (including one from CLSA/ACGA) have indicated a low correlation between the ESG scores across the different vendors. While the authors of the CLSA/ACGA report do not believe a lack of consistency “discredit[s] ESG data or the practice of scoring,” they add that it “underscores the danger of relying on a simple final score for investment decisions”.
In fact, given the variety of ESG regulations across regions and sectors, blindly comparing two companies’ high-level scores can be like comparing apples to oranges. Hence, it may be wise to view ESG through multiple lens’.
One particular lens that has a growing global reach are the UN Sustainable Development Goals. The Sustainable Development Goals (SDGs) are a collection of 17 global goals set by the United Nations General Assembly in 2015 to be achieved by the year 2030.
They are an articulation of the world’s most pressing sustainability issues, and as such, act as a globally agreed sustainability framework.
By providing a common language and set of targets, it allows for better comparison between SECTORS and COUNTRIES, resulting in a more meaningful conversation when communicating the positive impact of a particular investment portfolio.
So, as the conception of the purpose of a business changes from simply maximizing shareholder value, towards benefiting all stakeholders, the definition of success will change as well. Ultimately, the challenge for any asset manager attempting to measure success beyond dollars and cents is coming up with metrics that matter for you and your investors.
Discover the social & environmental impact of your investment portfolio by contacting firstname.lastname@example.org