Investors are increasingly aware of the importance of sustainability and the investment opportunities that exist linked to climate, although the information provided to investors in the financial sector has so far been limited, according to the European Commission.
Since March 10th, asset managers, pension funds, insurance companies, and investment advisors in the European Union (EU) have been obliged to disclose how they assess the environmental and social sustainability of their products and when they claim to have a green strategy, to justify it. This is required by the regulation with which the EU aims to boost sustainable investments, as it estimates that to achieve the climate targets it has set for 2030 would require an additional $305.9 billion (€260 billion) per year in investments of this type.
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To discuss this, El Confidencial organized, together with Axa IM, Fidelity International, Schroders and Natixis IM, the round table ‘Investing with impact’
Taking part in the debate were Sophie del Campo, managing director of Iberia, Latam and US Offshore at Nataxis Investment Managers; Beatriz Barros de Lis, managing director in Spain and Portugal at Axa Investment Managers; Sebastián Velasco, managing director in Spain and Portugal at Fidelity International; and Carla Bergareche, managing director in Spain and Portugal at Schroders.
During her speech, Sophie del Campo, managing director of Iberia, Latam and US Offshore at Nataxis Investment Managers, welcomed the fact that “at last” rules have been established in the European market to achieve harmonization and allow investors to “compare between products.’ Del Campo recalled that “the sustainable wave” began more than 30 years ago, “although until now there had not been an explosion and a change in the mentality of citizens,” who are no longer only looking for a financial return when investing, but to generate a positive social or environmental result. But it is not only citizens who have a great responsibility in this area. It is now essential to promote a sustainable economic model in which all stakeholders, both in the public and private sectors, are involved.
In this regard, Beatriz Barros de Lis, general manager in Spain and Portugal of Axa Investment Managers, pointed out that all companies “are making great progress. Whereas before the main objectives were profit generation, shareholder remuneration and value creation, now the important thing is to generate a positive impact on the society in which they operate. In other words, to carry out actions that take into account the development of the population and the sustainability of the planet. Until a few years ago, investments were analyzed only in terms of two dimensions: profitability and risk. Now, a third dimension has been incorporated: impact, a new variable that must be aligned with the other two.
For the managing director for Spain and Portugal at Schroders, Carla Bergareche, “investors are increasingly driven by the desire to exert a positive social influence.” “They want their portfolios to be aligned with their personal values,” del Campo added.
Likewise, the Schroders managing director for Spain and Portugal explained that there are different ways of approaching sustainable investment. The simplest is to exclude the most harmful sectors, such as arms companies, from the investment universe. However, this “is not enough,” he explained and defended the importance of “going a step further and maintaining an active dialogue” with the companies. The aim is to avoid focusing only on financial criteria when evaluating an investment. From there, “the last step involves generating impacts aligned with the Sustainable Development Goals established by the United Nations,” explained Bergareche. According to different studies, the new generations – specifically the ‘millennials’ – are more likely to invest in companies with social and environmental objectives. However, this is not the only segment where the sustainability message has taken hold. Experts agreed that it is an “intergenerational” issue.
The COVID-19 pandemic, a catalyst for sustainable finance
The year 2020 was a turning point in terms of demand for sustainable investment funds. Assets in this type of fund increased by 52% in Europe to $1.3 trillion (€1.1 trillion), according to Morningstar data. Experts agreed that the pandemic has been a “catalyst” that has contributed to the push for sustainable finance. “Today more than half of the companies our analysts talk to incorporate aspects of Social Responsibility in their Boards and Boards of Directors, while two years ago it was about a quarter,” said Sebastián Velasco, managing director in Spain and Portugal at Fidelity International.
However, the COVID-19 crisis has not been the only factor that has accelerated the development of this type of investment. Among others, Velasco pointed to the “attention being paid to it by the media, the interest of the regulator, and the focus of the large fund managers.” In addition, he also put on the table, as a catalyst for change, the discontent that became palpable in the streets in 2019 with the protests in Paris, Hong Kong and Santiago de Chile. These mass demonstrations showed the disagreement of a large part of the population with the way in which resources are allocated, resulting in difficult access to housing and a low possibility of finding decent and well-paid jobs.
As the general manager in Spain and Portugal of Fidelity International recalled, in the USA only 42% of people under 30 years of age support capitalism, a very low figure, which responds to the fact that, in the last decade, the profit of companies has been allocated more to the remuneration of capital – that is, to the remuneration of investors – than to the remuneration of the work of their employees, which translates into an increase in inequality. “The big argument in defense of capitalism is to reduce differences and create more opportunities, and if that doesn’t happen, we are putting it at risk. Hence the importance of the financial sector contributing to this transformation towards sustainable capitalism,” said Velasco.
A very profitable option
At the beginning of the pandemic, companies wondered whether, as a result of the crisis, it would be necessary to sacrifice the green transition in order to preserve economic growth. So far, this does not seem to have been necessary. “I think sustainable investment has won out in the end. Not only has the need for it not been questioned, but it has also been reinforced. We must not forget that, in many cases, sustainability is going to be an engine of economic growth,” said Beatriz Barros de Lis, Axa IM’s managing director for Spain and Portugal. The truth is that the good returns in 2020 are increasing interest in these funds. There are several studies that show that a majority of sustainable funds perform better over 1, 3, 5 and 10 years compared to their non-sustainable equivalents.
“Investing sustainably is profitable. If we talk about the short term, the differences are obvious, but when we take a long-term approach, ESG (environmental, social and governance) investing significantly improves the return-risk of investment portfolios,” Barros de Lis stressed. “It is only a matter of time before all investment is 100% sustainable” (Del Campo) Sebastián Velasco warned that there is “a lot of money” looking to invest sustainably, for example in companies that reduce carbon emissions. In his opinion, the situation is similar to what we had in 2000, when there was a lot of money looking for technology companies. In this sense, the general manager in Spain and Portugal of Fidelity International was “totally in favor” of companies making the effort to join sustainability, although he considered that “probably” not all the money invested with this criterion is going to have good returns. The representative of Axa IM, in the same line, added that “investing in sustainability is not necessarily going to give you better returns”.
“We have to think that it is also possible that a bubble is being generated to the extent that there is a lot of money and probably not all the companies that are receiving it are going to meet the expectations of investors,” said Velasco. In spite of everything, for Sophie del Campo “it is a question of time” for all investment to be “100% ESG”, although she considered that it is necessary that “politicians, regulation, investment industries and investors all go in the same direction.”
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First published in Cotizalia, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
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