22 Jul Sustainable investing for a healthy post-pandemic economy
How world leaders and investors are taking a sustainable approach to their future in a post COVID-19 world.
What does the sustainable economy of the future look like? And who is showing the kind of leadership we need in a post-pandemic world?
These were the questions in the air at a recent virtual meeting of B Corps, a collective of companies committed to using business as a force for good (and undergoing regular assessments to confirm their adherence to that mandate). Many of the attendees held up Denmark and Norway as countries that appeared to be building sustainable post-pandemic economies. As one of the few wealth management delegates in the meeting, Genus’ Sue-May Talbot was excited to share that more prospective clients than ever were asking about ESG and sustainable investing strategies, citing former Bank of Canada head Mark Carney’s recent appointment as UN Special Envoy on sustainable finance, alongside a desire to put their money to work for good.
In a recent virtual address to the Global Investors for Sustainable Development Alliance, UN Secretary General, António Guterres, implored members not to let the immediate needs of national economies in crisis derail the imperative to mitigate the long-term impacts of climate change. Guterres also seemed to highlight that ESG considerations will be key to an economic recovery centered around sustainable investing, urging his audience to support Mark Carney’s calls to action around reporting, risk and return. According to Carney’s mandate, no financial decision should be made without considering environmental and social impacts (the ES of ESG).
There is a longstanding perception in the investment industry that investing in at least some of the “bad stuff” (extractive industries, corporations with poor human rights records, those with an outsized impact on climate change, etc.) is a requirement for generating strong returns. Over time, that perception is gradually being dispelled (see our most recent Divestment Report for numbers that support fossil-free investing for stronger returns) and part of what has supported that shift toward sustainable investing strategies is Environmental, Social and Governance (ESG) investing
Individual wealthy investors are also heeding the call for ESG-centered strategies — as Sue May observed with her prospective clients. As the economic impacts of the pandemic are disproportionately felt by the poor, billionaires find themselves under some scrutiny, with many wealthy investors seeking out sustainable and ESG investing opportunities in an effort to put their means to work for the greater good. Not only does sustainable investing align them with the progress toward a more equitable post-pandemic future, in many cases, it also generates stronger returns, as Genus’ own research on divested portfolios supports. A ten-year analysis by Morningstar also found that many ESG funds outperformed their non-ESG counterparts. The combination of strong returns and a better reputation is a powerful motivator: In a survey commissioned by communications agency Transmission Private, 73% of respondents thought more positively of billionaires that stopped investing in controversial industries.
“The Danish industrial foundation model encourages a longer term, stewardship approach to stock ownership, compared to the rapacious short-termism often experienced elsewhere,” Robert Strand, executive director of the Center for Responsible Business at Haas School of Business at USC Berkeley, recently told Forbes. The Danish pension fund for academics, MP Pension, recently divested its portfolio from 24 oil companies and announced its intention to exclude coal and tar sands from future investments. The fund is also a signatory to the UN’s Net-Zero Asset Owner Alliance. Similarly, another Nordic nation, Norway, announced its sovereign wealth fund would no longer invest in fossil fuel exploration in 2019.
As we prepare for a post-pandemic reality, new sustainable investing approaches — including adopting ESG considerations as a baseline — have a big role to play in building the sustainable economy of the future. Wealthy investors and heads of state alike are beginning to answer the call to make sustainable investing the rule, rather than the exception. And, if the conversations in B Corp are any indication, we have reason to be optimistic.