Sustainable investing is rapidly gaining in popularity. More than EUR 23 000 billion is invested worldwide according to environmental, social and governance (ESG)1 criteria. That is over a quarter of the total value of global equity investments.
There is more behind the rise of the ESG investment approach than idealism. According to Sheila Ter Laag, ESG specialist at BNP Paribas Asset Management, the financial sector has caught on to what is at stake. “This is evident not only from the sizeable amount of money flowing into sustainable investing, but also from the trend towards collaboration. One example is the Network for Greening the Financial System, set up just over a year ago. The presidents of eight major central banks were involved in this initiative. Businessman and politician Michael Bloomberg is the chairman. These people are not doing this out of pure idealism, but also because the financial stakes are high.”
The price tag of climate change
The consequences of climate change are serious, says Ter Laag. “The damage caused by large natural disasters has grown steadily in recent years. This leads to higher costs for insurers and companies operating in the affected areas. There is a growing awareness in the financial sector that if we don’t act fast to keep the world a pleasant place, the price to pay will be many times higher.”
Measures can trigger seismic shifts in other sectors. Energy companies may in the future have to make large write-downs on oil and gas reserves. Due to more stringent carbon emission regulations, fossil fuel extraction may no longer be commercially viable in the long term.
The returns on sustainable investing
With these big changes in mind, Ter Laag has little trouble defusing the second myth about sustainable investing. “You would think that the returns are lower than with traditional investing, but that is not the case. If you analyse how companies deal with environmental and social issues from a sustainability perspective, you discover risks that you wouldn’t see if you only looked at financial results. For instance, a company that uses energy and water much more efficiently than its competitors has a head-start when the prices of these commodities suddenly rise.”
Accordingly, BNP Paribas Asset Management is constantly searching for ways of making a difference with sustainable investing, both in financial terms for clients and in terms of the environment, society and governance.
1 Global Sustainable Investment Alliance, 2017