brief INSIGHT by Aberdeen Standard Investments
| Many investors use a strategic asset allocation (SAA) process to shape their portfolios over the long term. We believe there is a close link between SAA and environmental, social and governance (ESG) factors. ESG changes should shape the way investors allocate capital to generate long-term returns. The relationship works the other way, too. SAA can direct private capital to where it’s most needed to help alleviate the most pressing social or environmental problems.
| How ESG affects SAA
Investing to offset the effects of climate change is just one example. By using equity and bond markets to allocate to companies and projects that provide low-carbon energy and transport solutions, investors can seek to intensify the impact of their SAAs. Renewable-infrastructure equity, ‘green bonds’ and sustainable property offer other avenues for environmental impact investing.
Investors can also modify the SAA process to create strategic portfolios with significantly higher capital allocations to finance the move to a low-carbon economy – without sacrificing expected risk-adjusted returns.
To have maximum effect, investors must coordinate high-impact SAAs with more ambitious government policy. This includes efforts to speed-up technological change and encourage investor ingenuity. To do so requires a shift in mindset. Investors must realise that they can do more than respond passively respond to market forces. Instead, they can play an active role in shaping a more prosperous and sustainable future for all.
To find out how to do this, read our full white paper here.
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