Visualizing the Power of a Sustainable Investment Dollar

Sustainable investments are booming.

Between January and November 2020 alone, investments in sustainable ETF and mutual funds grew 96%. The UN Principles of Responsible Investment now has over 3,000 signatories representing over $100 trillion in assets. The U.S. Commodity Futures Trading Commission established a Climate Risk Unit to analyze climate risk across derivative markets, and as of March 2021, new sustainability disclosures have come into effect in Europe.

But how do we know if sustainable investments have made a difference?

To answer this question, the above infographic from MSCI examines the effect of a sustainable investment dollar by looking at real-world examples.

A Sustainable vs. Unsustainable Dollar

To start, investing legend Benjamin Graham has compared the stock market to a “voting machine.” Just as consumers vote with their purchasing decisions, investors vote with their investment dollars. Especially in the short term, as more dollars flow to sustainable companies, this builds their exposure and access to capital.

In the long term, meanwhile, the market can be compared to a weighing machine. The market recognizes companies with profitable business models that improve their intrinsic value over time. Ultimately, this allows sustainable companies to expand and continue operating.

Given the rising momentum in both green assets and climate targets, here is how investment dollars have influenced and driven change across three industries.

1. Clean Energy vs. Fossil Fuel

Over the last several years, the energy sector has been associated with many of the problems causing climate change. For this reason, many investors are seeking out greener energy alternatives. But how does moving investment dollars from an ESG laggard to an ESG leader support the environment and society?

First, here is a brief explainer of ESG laggards and leaders:

• ESG laggards: companies with the weakest environmental, social, and governance (ESG) performance in their sector.
• ESG leaders: companies with the strongest environmental, social, and governance (ESG) performance in their sector.

Source: MSCI ESG Research

Based on the above example, investors have the ability to finance powerful green initiatives that reduce emissions by almost half, relative to their peers.

2. Safe vs. Unsafe Working Conditions

Weak safety protocols are a key sustainability issue for the industrial sector. Here’s how two companies compare:

Source: MSCI ESG Research

Despite the risks involved in the sector, investors can choose to support companies that take greater precautions to protect their workers.

3. Building Trust vs. Losing Trust

Over the last several years, the financial sector has faced increased scrutiny over fraudulent activities. Moving investment dollars from an ESG laggard to ESG leader may make a difference:

Source: MSCI ESG Research

From board diversity to green loans, a sustainable investment dollar supports companies that are actively advancing society and the environment.

Sustainable Investment: The Time to Act

Recently, investor dollars and shareholder activism have been closely linked.

Between 2018 and 2020, large institutional investors filed 217 shareholder proposals on climate change alone, putting increased pressure on companies. Meanwhile, 270 proposals were filed on corporate political activity and 228 on fair labor and equal employment opportunity over the same timeframe. Across all ESG proposals, $2 trillion in assets were pushing for more equitable corporate action.

Through the power of a dollar, investors can send a clear signal to companies: the time for sustainable investing is now.

Visualizing the Snowball of Government Debt in 2021

As we approach the second half of 2021, many countries around the world are beginning to relax their COVID-19 restrictions.

And while this signals a return to normalcy for much of the global economy, there’s one subject that’s likely to remain controversial: government debt.

To see how each country is faring in the aftermath of an unprecedented global borrowing spree, this graphic from HowMuch.net visualizes debt-to-GDP ratios using April 2021 data from the International Monetary Fund (IMF).

Ranking the Top 10 in Government Debt

Government debt is often analyzed through the debt-to-GDP metric because it contextualizes an otherwise massive number.

Take for example the U.S. national debt, which currently sits at over $27 trillion. In isolation this figure sounds daunting, but when expressed as a % of U.S. GDP, it works out to a more relatable 133%. This format also allows us to make a better comparison between countries, especially when their economies differ in size.

With that being said, here are the top 10 countries in terms of debt-to-GDP. For further context, we’ve included their 2019 and 2020 values as well.

Source: IMF

Japan tops the list with a ratio of 257%, though this isn’t really a surprise—the country’s debt-to-GDP ratio first surpassed 100% in the 1990s, and in 2010, it became the first advanced economy to reach 200%.

Such significant debt burdens are the result of non-traditional monetary policies, many of which were first implemented by Japan, then adopted by others. In the late 1990s, for instance, the Bank of Japan (BoJ) set interest rates at 0% to counter deflation and promote economic growth.

This low cost of borrowing enables businesses and governments to accumulate debt much more freely, and has seen widespread use among other developed nations post-2008.

What are the Risks?

Given that a majority of countries in this visual are red (meaning their debt-to-GDP ratios are over 50%), it’s safe to say that government borrowing is common practice.

But are large government debts a cause for concern?

Some believe that excessive borrowing will lead to higher interest costs in the long run, which could detract from economic growth and public sector investment. This theory is unlikely to become a reality anytime soon, however.

A recent report by RBC Wealth Management reported that the cost of servicing U.S. federal debt actually decreased in 2020, thanks to the low borrowing costs mentioned previously.

Perhaps a more prescient question would be: how long can the world’s central banks keep interest rates at near-zero levels?