If you pay attention to the financial media, you might have encountered the notion that sustainable investing is a topic of debate. Investment experts often have conflicting views on what constitutes sustainable investments and how these should be assessed. The discourse can become quite critical, with traditional investors and those focused on sustainability often at odds with one another. While controversy can be engaging, much of the disagreement may miss the point. A notable example of this is the category of sustainable investing known as water funds, which has largely escaped significant scrutiny or contention.
Understanding Water Funds
Water funds, in general, focus on investing in the global water infrastructure sector. These funds and exchange-traded funds (ETFs) typically maintain a diversified collection of companies engaged in various aspects of water management, including utilities, infrastructure development, desalination, wastewater treatment, and irrigation systems. Clean water is essential for both survival and economic progress, which is why “clean water and sanitation” ranks as the sixth sustainable development goal set by the United Nations. Furthermore, the ability to build and maintain water infrastructure remains invaluable, attracting both traditional investors seeking financial gains and sustainable investors aiming for positive impact, fostering a harmonious investment environment.
The Tortoise Case Study
Interestingly, water funds can share some traits with other sustainable investing strategies that face criticism. A case in point is the Tortoise Global Water ESG Fund, known as TBLU, which is featured in Equities.com’s Impact Funds list. This passive fund mirrors the performance of a custom index created by Tortoise, known as the Tortoise Global Water ESG Index. Similar to other water-centric funds, TBLU holds a worldwide portfolio of stocks spanning various water-related sectors. From a performance standpoint, TBLU has seen moderate success, achieving an average annual return of about 10% since its inception in 2017, as of December 31, 2024. While this performance aligns with its index, it falls short of the S&P 500, which has seen over a 14% annual increase in the same period.
Evaluating Performance
Is this lagging performance an issue? It depends on the investor’s objectives. If the aim is to match the S&P 500’s returns over all periods, then indeed, it could be problematic. Similarly, if the goal is to achieve a 14% return per year, then TBLU’s performance might not suffice. However, not every investor has those specific targets. On its own, TBLU’s return is strong, and it offers diversification benefits to a portfolio, as its performance does not closely correlate with that of the broader stock market. This divergence is actually a key aspect of its appeal.
A Different Perspective
The narrative could shift dramatically if TBLU were an alternative energy fund, a fund focused on women’s leadership, or one aimed at minority empowerment, or even a comprehensive ESG fund centered on ethical business practices. These types of funds often attract more scrutiny, with critics quick to compare their returns against the S&P 500 or other conventional indices when they fall short. This ongoing debate highlights a crucial realization: much of the finger-pointing may not provide substantial insights. Ultimately, a sustainable investment strategy is, at its core, still an investment strategy. Funds that channel resources into global water infrastructure present investors with a distinct risk-return profile and exposure to a crucial sector with an expanding global presence.
Concluding Insights on Sustainability
The same logic can be applied to other sustainable investment approaches, such as those focusing on alternative energy or women-led businesses. This principle also holds true for funds that invest in technology sectors like AI or biotechnology, as well as traditional sectors such as financial services. What truly matters is whether investors achieve their desired outcomes with their investments.
