Strategies for Sustainable Investment

In the last decade, investment has changed to become more ethical and environmentally-oriented.

“For too long, the discussion on climate change has concentrated on the energy sector. There is an urgent need to focus more on effective management of agricultural supply chains,” said Jan Erik Saugestad, the CEO of Storebrand Asset Management, the largest private asset manager in Norway, and also a signatory.

There are unexpected signatories, too, including China Asset Management (one of that nation’s biggest fund families), Australia’s First State Investments, HSBC Asset Management (a $1 trillion Canadian asset manager), TD Asset Management, and Mitsubishi Banking Corporation (a financial conglomerate and the world’s fifth largest bank). [1]

These partners command 16 trillion dollars, not a bad endorsement of sustainable investment.

Finansco, on their website finansco.no, quotes a comment by Frederik Backe Gulbrandsen 10/12-2020:

“The last years have seen more discussion and demand for investments in solutions/sustainability (impact investing). This type of investments – where ethics and sustainability count along with financial return – is high on the agenda for the whole sector. Especially the last years have seen a considerable improvement in climate considerations.

A few years ago, implementing climate or sustainability strategies often meant that financial returns suffered. But new studies of ESG investments [2] , evaluating climate, social and governance criteria, prove that this is no longer the case. Returns from BlackRock show that sustainable funds over the last few years have given returns equal to, or even greater than, traditional funds with similar volatility.

The evidence above shows that a focus on sustainability and climate issues has a positive effect on a company’s long-term development. One reason for this is that there are parallels to other quality factors, such as a strong balance sheet, which suggest that impact companies are more robust in a downturn. This has even been experienced by Finansco through our portfolio Finansco Impact which has performed strongly through the Covid-19 period.

There are many reasons why sustainable investments are now attractive to a risk-and-return focused investor.

The public, and especially the younger people now entering management and executive positions, are increasingly aware of how companies demonstrate their sense of climate and/or social responsibility.

How sustainable investments function has also changed. The investment universe is no longer limited to a handful of specialist sectors. As a consequence, the investment universe has become more diversified. The question for future-oriented investors is therefore no longer “Why sustainable investments?”, but “Why not?”

Sustainable investments based on UN sustainability targets are the future of investment and can no longer be ignored. But ESG performance alone is often not enough. Investors can benefit from creative approximations which give increased insight in sustainable investments.”

 

1 “Prompted by Amazon fires 230 investors warn firms linked to deforestation.” Sue Branford, Mongabay 23/9-2020
2 “Corporate Sustainability: First Evidence of Materiality” by Khan, Serafeim & Yoon.

 

Translation by Tore Audun Høie, 4/1-2021

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