RISE OF RESPONSIBLE INVESTING HOW RESPONSIBLE INVESTING CAME OF AGE Just as the tech sector has done before it, responsible investing continues to mature and grow – and for four solid reasons Cherry Reynard T he progress of structural growth trends is seldom linear. These days, the march of technology may seem unarguable but that would be to overlook the fact that, along the way, the sector has attracted its fair share of doubters while share prices for tech businesses have been up and down – and a similar phenomenon now appears to be at play with responsible investing. A recent slide in share prices for companies involved in the transition to greener energy sources has given the naysayers a chance to suggest that sustainable investing’s latest spell in the spotlight will be short-lived. Yet in reality, just as technology has done before it, responsible investing continues to mature and grow, regardless of share prices – and for a number of very solid reasons. GOVERNMENT COMMITMENT The past 12 months has seen climate change rise up the agenda for governments around the globe and, in particular, the world’s largest powers have been keen to demonstrate their commitment to decarbonisation. The US has rejoined the Paris Climate Accord under president Joe Biden’s administration while China has committed to attaining ‘net zero’ by 2060. Other countries, such as Japan and Korea, have made similar pledges but, without the participation of these two global behemoths, real progress would be near impossible. Governments have also put their money where their mouth is, backing up their commitments with signifi cant capital. Biden has unveiled a $2trn (£1.46trn) infrastructure package, which includes plans to convert public transport to clean fuel and electricity, incentives for US production of electric cars and the build-out of a charging infrastructure, plus energy-e cient homes and buildings. For its part, the European Union’s €1trn (£850bn) Green Deal is even more ambitious, targeting not just climate change initiatives, but biodiversity, sustainable agriculture and energy e ciency. Survey 2021 indicated, for example, that more than one-fi fth (22%) of institutional investors are integrating ESG in at least three-quarters of their portfolios. In the same survey in 2019, not a single investor envisaged this would be the case. The same survey found almost half (45%) of respondents believed ESG capabilities were embedded throughout the organisation rather than being the preserve of specifi c teams – almost double the level of the previous year’s survey. Trevor Allen, sustainability research analyst, global markets at BNP Paribas, says there is still progress to be made, but adoption is accelerating. “There is a barbell,” he continues. “You have a fi fth of investors saying it is critical to everything they do, but you still have 44% of investors saying they integrate it into 45% or less of their investment portfolios. “When we look forward, however, in two years 55% of our respondents expect ESG will be integrated into at least 50% of their portfolios. The trajectory we see for ESG integration is not tapering – it is actually increasing.” This new investor interest is refl ected in fund fl ows. Morningstar data shows that assets in global sustainable mutual funds pushed on to new highs in the second quarter of 2021 after attracting a further $139bn of fl ows. While this represented a slowdown from the fi rst three months of the year, clearly demand remains robust. INCREASING BREADTH The sustainable investment sector is broadening in a number of ways. First, investment managers are moving beyond climate change and extending their analysis into areas such as biodiversity, the circular economy, water and sustainable supply chains. In the second quarter of 2020, for example, EdenTree launched a new thematic engagement on biodiversity, analysing the actions that 20 of its investee companies were taking in this area, with the aim of identifying best practice and encouraging better disclosure. STUART FORBES, co-founder and director, Rize ETF GREATER PRIORITY FOR INVESTORS From extreme climate events to the Covid-19 pandemic, the past few years have prompted a sea change in the way investors view sustainable investment. It is now fi rmly mainstream. The recent BNP Paribas Global 4 | Guide to Responsible Investing Autumn 2021 Unless engagement has teeth and carries a real threat of divestment and/ or public rebuke, then it is not enough to compel companies to evolve
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