In the year of COP26, where does sustainable investing go from here?
Ingrid Kukuljan, head of impact and sustainable investing, at the international business of Federated Hermes We are still at the inception stages of what we believe is a multi-year secular growth story for sustainable investing.The challenges faced by the world already, such as climate change and biodiversity loss, are enormous, and it has been estimated that by 2050, the world’s population will increase by 30%, driving food demand by 35% and energy use by 25%.The only way to address these challenges is by making a significant move towards a more sustainable society and economies. Sustainable investing will be key, as through capital allocation, investors will ‘vote’ for the leaders and laggards. We are hoping that COP26 will accelerate the pace of change, as what we have seen so far is not sufficient to reach the current net zero targets - which we would argue are not ambitious enough.
Will Martindale, group head of sustainability, CardanoThe metric that matters most is the level of greenhouse gases in our atmosphere. Greenhouse gases are at their highest in human history. And they’re rising. Investment frameworks, targets and scenarios, underpinned by regulation, help us better understand the challenges ahead. Tackling climate change is complex. But as we emerge from COP26, we need a ruthless focus on real-world impact. We need to prioritise carbon emissions reductions, halving by 2030 at the latest.In practical terms, it means no new coal, oil or gas – starting now. It means scaling-up renewables and rethinking transport, protecting and restoring biodiversity and nature, and transitioning hard-to-abate industries such as concrete and steel. It means engaging companies, regulators and policymakers on the transition.For example, at Cardano, we’ve ended our direct commodity exposure to fossil fuels, increased our allocation to green bonds and low carbon equity, and we’ve called on the SEC and FCA to bring forward climate reporting.Where do we go from here? In short, as an industry we need to prioritise real-world impact, with emissions reductions front-and-centre of how we collectively invest.
Claire Hedley, EMEA ESG and sustainable investing strategist, Goldman Sachs Asset ManagementOver the past 18 months, sustainable investing has grown in size and influence so much that it is now part of mainstream finance. From here we need to innovate, accelerate and scale investments across portfolios if we are to meet global climate goals and avoid the worst effects of climate change. Sustainable investing will be increasingly incorporated across asset classes, including equities, fixed income and alternatives to manage portfolio risks and identify investment opportunities associated with climate transition. Protecting and restoring nature is a central component of reaching net zero goals and I would expect we see continued focus on investing in nature-based solutions as a growing part of sustainable investing. Finally in a year of COP26, climate justice will also be a prominent theme that will underscore the importance of continuing to invest in the real economy and helping transition in a way that doesn’t leave communities behind. The transition must be fair and just if it is to be sustainable.
Nathalie Flury, co-head sustainable healthcare, HSBC Asset ManagementAs we emerge from the pandemic and look to build back, there will be a flurry of investments in healthcare to develop innovative treatments and to build capacity to prevent the next crisis. But at the same time the economic burden from Covid-19 will be forcing payers to spend more prudently. Innovation at rising cost will no longer work in this context. However, products from companies which offset existing costs will be in high demand. This can be achieved by innovation which is delivering great clinical benefits while at the same time is reducing overall healthcare cost. For example, by reducing the duration of hospital stays or early diagnoses and treatment of disease. Approaches like this will help ensure the sustainability of healthcare systems. Investors have an opportunity to contribute their part to make healthcare sustainable, for our own and generations to come, by investing in such non-cost driving innovative companies. A “standard” ESG approach by itself does not suffice to identify and select such companies but needs to be complemented by health economic analysis and ongoing company engagement.
James Smith, manager of the Premier Miton Global Renewables Trust ‘Sustainability’ means exactly that: an investment which lasts and will be as relevant in tomorrow’s world as it is in today’s. my mind, for an investment to be sustainable therefore, it must have answers to the following questions. First, does it pose a risk or create harm? If so, it is likely to be regulated out of existence at some point. Second, is it about to fall victim to newer and lower cost ways of doing things? Third, does it actively generate benefits for society as well as shareholders? In my own investment space of electricity generation, it is clear that generating electricity with fossil fuels, which still accounts for the majority of global electricity production, has very poor answers to these questions. By contrast, an investment in renewable electricity generates a product for which we all have a need, while posing far lower risks to the planet and our communities – all now at a very competitive cost in comparison to fossil fuels.
Jenny Anderson, co-head of sustainable investment and ESG, Lazard Asset ManagementCOP26 is likely to refocus nations’ attention on the climate fight, despite the COVID-19 crisis continuing to cause social and economic disruption. Positively, there has been a rapid increase in commitments by governments, companies and investors to support the shift to a net zero global economy. But less positive is the lack of clear policy and action required to reach ambitious reduction targets.After COP26, we believe there will be much more scrutiny on the details that underlie government and corporate net zero plans. As active investors, we are well-positioned to understand the cost of the transition and implied cost of carbon abatement, which will require an appraisal of companies’ capex and opex decisions and how transition might impact financial productivity.We also think investors will need to shift focus towards impact, particularly with respect to other sustainability challenges such as biodiversity loss, deforestation and racial and social injustice. Assessing materiality in these areas is more challenging but still will be important for investors looking to support a more sustainable future.
Manuela Sperandeo, head of EMEA sustainable indexing at BlackRockThe momentum behind sustainable investing is accelerating with industry AUM totalling $2.3trn as of Q1 2021, and our clients expect to double their allocations to sustainable investments over the next five years. Investors are particularly focused on how to navigate the transition to a low-carbon economy and incorporate climate risks into their portfolios, an emerging theme which ETFs and index solutions can give access to in a transparent way. Today, there are nearly 600 sustainable ETFs available globally (up from 30 a decade ago), a growing number of which enable investors to build portfolios around climate needs. Investors can opt to reduce carbon exposure, prioritise low-carbon transition, or target selected climate-related themes, depending on their sustainability goals. Many of these ETFs can serve as foundational building blocks for people seeking out affordability, transparency, and convenience when investing sustainably.
We speak to seven fund managers about sustainable investing.