Sustainability and the future of investing

After the pandemic, the impact of the asset management industry on climate action is set to change.

Ever since the United States moved to leave the United Nations Framework Convention on Climate Change (UNFCCC) Paris Agreement, the international political landscape has been left without a united front.

Even considering that the Agreement was drafted in 2015, it now seems that the $85-trillion asset management industry is slowly waking to the growing risks of global warming.

The upcoming change in the White House, is only a symptom of a global change in perspective, and energy behind climate action. That is measurable in how investment in sustainability-backed projects has reportedly grown more and more.

For example, in the third quarter of 2020, sustainable funds grew by 16% over the previous three months. Investors have showed their interest in socio-economic issues related to climate change and sustainability, by funneling cash into the sector.

The Covid-19 pandemic has created new rules for business and investing, as well as for our everyday lives. Together with that, a need for the building of sustainable and resilient businesses has been made clear with the difficulties faced by businesses in 2020. It has been important to keep all actors involved, and not just the stakeholders.

The public profile of every business is something that simply must be considered more in depth. Sustainable funds themselves have shown resilience, performing better than other sectors during the spring lockdown period. These bounced back with an 18% rise at the end of October 2020. The value of green bonds issued in the first nine months of 2020 surged 12% over the previous year to more than $200 billion.

It seems as if the Covid-19 crisis has given the world a unique moment in which to press “pause” and reconsider. Investors all around the world are banding together to refocus, and ensure that in the restart their efforts will be centered on investing in a sustainable fashion.

Even the response to an urgent crisis like the pandemic has leaders looking to find sustainable solutions. European Commission President Ursula Von der Leyen announced earlier this quarter that 30% of the bloc’s coronavirus recovery package, which amounts to around $880 billion, would be raised via green bonds.

Other global players have joined in the effort. Governments around the world are including environmental projects in their Covid-19 recovery plans. These plans will have to be financed by taking on a vast amount of debt. At the same time, the massive change in perspective caused by the pandemic is pushing  companies to strengthen their focus on addressing societal and environmental issues.

In Japan, 35% of shareholders in Mizuho Financial, one of the largest players in the region, supported the country’s first-ever environmentally-focused proposal, which called on the banking group to disclose a Paris agreement plan.

In the United States, long before the upcoming change at the White House, a resolution calling on Chevron to disclose all of its lobbying on climate change was eventually approved. Just under half of shareholders supported a climate proposal at JPMorgan.

After suffering years of condemnation over alleged inaction, BlackRock, the world’s biggest asset manager, uncovered plans in January to put climate change at the center of its investment process by rolling out new environmentally-friendly funds. More critically, the plan included vast divestment in some coal holdings. It also mentioned a tough line on global warming during closed-door discussions with businesses around the world.

The world of finance too then, has been looking to reinvent itself. It is abundantly clear, that to face the challenges of climate change, steps will have to be taken.

Some progress has already been made this year: More than 71% of banking businesses have kicked off sustainability-based initiatives, far more than any other time in history. When it comes to investing, polls have shown that environmental issues, together with social governance concerns, are crucial to the decision-making process for more than half of the sector. To respond to this demand, ad hoc investment opportunities have been created at a faster rate than ever before.

In this swirl of activity, more than 450 asset managers, with $40 trillion in assets, have signed up to an initiative called Climate Action 100+ to force the world’s biggest carbon emitters to tackle global warming. BlackRock joined the group in January.

There is still a way to go. As a percentage of all portfolios, sustainability and environment concerns only affect for a tiny fraction of the whole pie.

Asset management enterprises have furthered the commitment and dedication of the banking industries, when it comes to producing more climate-aware offerings. That commitment begins when selecting investment options, which in this case means excluding things like Tobacco companies and subsidiaries, weapon manufacturers, gambling businesses.

While not specifically connected to environmental and climate concerns, this effort points the way for more responsible investing everywhere.

The path to greener investment is not assured, as there is growing pushback against investors acting as climate warriors. Asset managers are gearing up for a fight with the federal administration over a new proposal that threatens investors’ ability to incorporate ESG principles into pension portfolios. At the same time, many well-known asset managers are still reluctant to vote against management, meaning the vast majority of climate resolutions do not pass.

However, with new tidings in Washington, D.C. the future of investment, even in the face of a global, urgent crisis, looks greener than ever.


Angelo Russo is a freelance journalist and can be contacted at russoangelo992@gmail.com

Main image courtesy of iStockPhoto.com

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