Your Top Questions on Sustainable Investing — Answered

In a recent webinar, we invited participants to submit their most pressing questions about sustainable investing. Their inquiries ranged from the impact of U.S. environmental policy shifts to the key warning signs that a business may not be as sustainable as it appears.

Here, our founders, Chat Reynders and Patrick McVeigh, answer those questions, sharing perspectives on how sustainability drives long-term growth, resilience, and an investment advantage.

Why does sustainable investing get a bad rap?

Chat: Wall Street turned sustainable investing into something it could sell at scale. It took ESG data, which is by nature backward-looking and imperfect, and treated it as if it were a complete research process instead of the beginning of one. Rather than doing fundamental work, it used scores and screens to turn an existing index into an ESG index with a few small tweaks. To us, that’s not trying to find the best investments. That’s just a marketing effort, which tells you the methodology was built for convenience, not insight.

Patrick: What’s missing from Wall Street’s approach to sustainable investing is qualitative analysis, a philosophy introduced by Benjamin Graham in the book Security Analysis more than 90 years ago but largely ignored. Instead, the Street prefers a clean dataset to plug into an algorithm, not the kind of holistic assessment that tells you where the world is going. Today, those assessments include things like environmental limits, technology shifts, social expectations, supply-chain resilience, human capital, and regulatory risk.

What does Reynders, McVeigh do differently?

Patrick: What’s different about us is that we don’t treat sustainability like a cute little idea. Instead of allocating 5% of a portfolio to sustainable businesses and the rest to other strategies, sustainability is core to everything that we do.

Chat: Our definition of sustainability is also different. To us, sustainability is sustained returns. It’s the ability to weather and manage the toughest storms. Every asset in our clients’ portfolios has been purchased with the goal of owning that asset over a long period of time to compound return. In many cases, Wall Street's looking only three to six months ahead — maybe sometimes only three hours ahead. We’re looking a lot further out.

Why do you believe sustainability drives long-term growth?

Patrick: Wall Street has made investors believe they have a false choice: you can have either sustainability or superior returns, but not both. Our view is that a key driver of long-term growth is sustainability. It’s not through the industries of the past but through the industries of the future: clean energy, electrified transportation, water infrastructure, healthy living, circular manufacturing, automation, even AI. These aren’t side themes. They’re where the economy is heading.

Chat: Long-term growth and resilience are intertwined. Avoiding losses is just as important as picking winners. To compound returns over time, we invest in companies with less exposure to liabilities that are positioned to take on challenges better than other companies. We focus on durable businesses and avoid industries with structural decline. The companies that survive and thrive are the ones planning for the next decade, not the next quarter. That’s not an ideological stance; it’s a practical investing advantage.

How does your investment discipline help you avoid major risks?

Patrick: One example is fossil fuels. In the early 2000s, the story in the world was that China was facing unlimited growth. Many believed its need for oil, along with other emerging countries, would send demand through the roof and that prices would skyrocket. We believed that demand was near the peak and, if anything, demand and prices would be coming down. Part of our thesis was based on sustainability trends. Europe, the U.S., and others were beginning to pull back on their use of oil, energy efficiency was improving, and renewables were starting to scale. We consequently avoided oil companies, a decision that allowed us to sidestep the industry’s structural decline. For perspective, when I started my investment career in the early 1980s, oil represented about 25% of the weighting in the S&P 500 Index. Today, it represents ~4%. So, the market has spoken. It has said we do not have a dependence on fossil fuels, and we're continuing to move away from them.

Chat: We applied a similar sensibility to banks leading up to the 2008 financial crisis. Before the crisis, banks were “beating numbers,” but the revenues were coming from off-balance-sheet structures and leverage, making it difficult to properly evaluate. (Patrick calls this “the B.S. [balance sheet] of ESG,” as many investors ignore the strength of the balance sheet.) We think the strength of a company’s balance sheet is one of the key factors that define sustainability. If we can’t understand the foundation of a business, we won’t own it. That discipline kept us underweight financials and out of banks, which protected our clients during the financial crisis.

Over the years — through the financial crisis, COVID, political cycles — sustainability helped us avoid companies that were one shock away from failure. Businesses with massive debt, regulatory exposure, supply-chain fragility, or environmental liabilities tend to break under pressure. Resilient companies do the opposite: they gain market share.

Are there sustainability risks that are largely overlooked in traditional portfolio theory?

Patrick: One of the biggest risks that isn’t fully reflected in modern portfolio theory is the idea of stranded assets. Corporations often invest in assets that only make sense under certain price or policy assumptions. The fossil fuel industry is an example: companies spend billions on exploration and book those potential reserves as assets. But if oil needs to be priced at $100 a barrel for those reserves to pay off, and the price per barrel is only $50, those assets can become liabilities and be abandoned by those companies.

Other industries also carry hidden risks, like forever chemicals. Companies thought they were magic. They were used everywhere, even in dental floss. Now they’re facing real liabilities. Microplastics are similar.

Our approach is always to look for what isn’t being fully priced in — the factors that could change the value of an asset dramatically over time — because those are the places where investors can get hurt if they’re not paying attention.

Can investors really drive impact in public markets?

Chat: Yes, and often more than they realize. My own background raising money to produce IMAX films about nature and conservation showed me how powerful it is when you build a model that attracts capital to make a difference in the world. In public markets, the same is true: companies respond when shareholders signal that sustainability matters.

Patrick: One of my favorite examples of a public company making an impact is carpet manufacturer Interface Corporation. Carpet manufacturing is a dirty business and Interface’s founder, Ray Anderson, wanted to change that. So in the 1990s, he brought in some of the smartest people in the world to help Interface become a sustainable business. Over the next 25 years, they figured it out. They made every product carbon neutral and reduced emissions dramatically, despite the company nearly doubling in size. They are a much more profitable company and gaining market share across all of their product lines.

That transformation happened because long-term investors supported the mission, and the economics made sense. It's a remarkable story of how any company, even in the dirtiest of industries, can become a carbon-neutral firm. To me, that's the model in the corporate world that others can replicate. And we're seeing other companies going down that path.

Do shifting policies threaten the future of sustainable investing?

Chat: Policy debates matter, but they don’t erase fundamental economic forces. Are we suddenly going to stop needing clean water? Is energy demand going to disappear? Is automation going to pause because of policy shifts? These are enormous cogs that move global economies, and they don’t turn off because of political rhetoric.

But I do think that, now more than ever, investors need to know what they own and why they own it. A disciplined approach — one that pays attention to liabilities, long-term plans, and fundamental economic drivers — keeps you anchored in the companies that can move forward regardless of the political environment.

At Reynders, McVeigh, we invest in every environment. We’re not designing investments to match the policy preferences of one president or another. We look long-term. And while Donald Trump’s presidency has introduced policy uncertainty, historically, some of our best-performing years were during the Trump administration. Politics doesn’t always match what’s happening on the ground.

What long-term sustainability themes excite you the most?

Patrick: One of the most exciting developments over the past year is that China, which is one of the world’s biggest carbon emitters, reduced its emissions, partly due to a massive surge in solar deployment. China is increasing its investment in clean energy at a scale that’s outpacing Europe and the U.S., and it is reaching a point where it’s getting control of its emissions. It is tackling these issues directly and, in many ways, taking the lead on some of the most important climate and energy themes. That, to me, is exciting.

Water is another major theme. The demand for clean water is only going to increase over time. Here in the U.S., we have an added catalyst: the Clean Water Act was passed in the early 1970s, and that’s when most of our water infrastructure was built. It was designed to last about 50 years. So, we’re entering a period where we must effectively supercharge water investment, and that creates, in our view, a compelling set of opportunities to participate in both long-term growth and core sustainability challenges.

Healthier living is a theme I’m excited about. For the past 50 years, we’ve been a country where people have generally become less healthy, putting on more weight and eating worse food. But we’re finally beginning to see some change. We’re taking artificial dyes out of food. We’re reducing the use of high-fructose corn syrup. People are starting to exercise more and lose weight. That may end up being one of the key sustainability themes going forward. And it also means that some of the historic food companies selling less healthy products could become fairly risky investments as this shift continues.

AI, robotics, and electrification are also themes. Despite being somewhat controversial, there’s a lot of potential for AI to make a positive impact on companies and sustainability. If we’re going to get to this next stage of our economy, we need to incorporate the good aspects of AI.

Chat: I’d add that, over the next decade, we believe the opportunity set will broaden meaningfully. Many of the most compelling growth stories are going to come from companies aligned with these sustainability trends, not the same narrow group currently driving the S&P 500. These aren’t niche ideas. They’re foundational to how the global economy will look 10 to 20 years from now, and the market is only beginning to price in their significance.

These questions highlight some of the most important themes Chat and Patrick discussed during the webinar, but they only scratch the surface. As always, views are grounded in long-term research and risk evaluation, and not in short-term forecasts or predictions. To hear the full conversation, including examples, stories, and audience Q&A, watch the on-demand webcast.

This material is provided for informational and educational purposes only and is not intended to constitute investment advice or a recommendation to buy or sell any security. The views expressed reflect the opinions of Reynders, McVeigh Capital Management, LLC (“RMCM”) as of the date of publication and are subject to change without notice.

References to specific industries, companies, historical events, or market conditions are provided solely to illustrate RMCM’s investment philosophy and research process and should not be interpreted as guarantees of future outcomes or performance. Past performance is not indicative of future results.

Investing involves risk, including the possible loss of principal. Forward-looking statements are based on current expectations and assumptions and are inherently uncertain; actual results may differ materially. Sustainability-related considerations are one of many factors evaluated in RMCM’s investment process and may not be relevant or applicable for all clients or strategies.

Clients and prospective investors should consult their financial adviser regarding their individual circumstances before making any investment decisions.