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Unlocking value with sustainability

The role of double materiality

As sustainability gains momentum and changes the perceptions of many investors, we are entering a new paradigm where non-financial criteria are increasingly being used to make investment decisions. However, it may seem difficult to navigate this additional dimension if investors do not proceed with a clear idea of what they intend to achieve.

Executive Summary

For decades, investors have relied on riskreturn models to optimize their portfolio allocation. For a given financial risk budget, the objective was to maximize the financial performance of a portfolio that combines risky assets with different levels of risk, liquidity and yield.

Let’s go back to basics: building a resilient portfolio is the objective of many investors. They want to optimize performance, while limiting the downside of adverse developments. Achieving this depends on factors that may positively or negatively impact the price of assets. Identifying these factors is essential, and traditional investors are used to analyzing multiple financial indicators when assessing the riskreturn profile of an investment opportunity. Over the last few years, environmental, social and governance (ESG) criteria have gained traction among the financial community. This trend goes far beyond Socially Responsible Investment (SRI), which mainly focuses on ethics and governance.

Performance magazine issue 34, January 2021

Performance is a triannual digest, dedicated to investment management professionals, which brings you the latest articles, news and market developments from Deloitte’s professionals and clients.

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