The Swiss newspaper Le Temps published a very interesting article on June 20 by Emmanuel Garessus on the topic of sustainable finance.
Based on a study published by Morgan Stanley the day before, sustainable investments worldwide reached a total amount of 22’800 billion dollars, and can no longer be considered a niche market. This means that a quarter of total investments made by professionals are following ESG (environmental, social and governance) criteria.
The annual growth rate of sustainable investments currently amounts to 11.9 % and continues to grow.
The majority of institutional investors, such as pension funds, foundations, insurance companies and sovereign funds, are now investing in this field, which used to be a niche a few years ago. Hedge funds are an exception to this trend.
Europe (12’000 billion dollars) and the United States (8’800 billion dollars) are major players in this field. Theme wise, climate change occupies the top position, ahead of inclusive growth and gender diversity.
Risk mitigation and potential return on investment are the main reasons why professionals invest in sustainable finance.
When I read the article in Le Temps, I had mixed feelings. On the one hand, it is very encouraging to see how quickly sustainable investments are increasing all over the world. On the other, we should remain aware that there are different levels of commitment from investors with regards to sustainable investments. A first level is exclusion (we just choose not to invest in the tobacco industry or in casinos, e.g.). A second level is the so-called “Best in class” approach where we decide to invest in company A instead of company B, because the former one has a better rating according to ESG criteria, even if we invest in non-renewable energy sources. The third level is impact investing where we select companies, which bring a real progress to the world, by addressing environmental or social issues and contributing to reach the UN SDGs (Sustainable Development Goals).
Unfortunately, the article doesn’t give any indication on the way the total amount of sustainable investment is shared between these different levels.
My personal opinion on this topic is that a shift towards more progressive and impactful levels of sustainable investments is as important as the total amount of these investments.
For that reason, the world needs more and more finance professionals with a solid background in sustainability, both at investing companies or institutions and at rating companies.