This clutch of stories from the investment world underline three important messages for all those in business – no matter which sector their company operates in.
First, it is clear that investor interest in and concern about environmental, social and governance (ESG) issues is undiminished, even in turbulent economic times. The fact is that good practice in these areas is seen as a strong indicator of management approaches that help to reduce volatility and risk over the long-term – something the financial markets are keenly interested in.
Second, the impact of business on the environment (and the impact of environmental change on business) is now considered a “material risk” for all companies, even those with a low carbon footprint. Institutional investors feel safer investing in those companies that can demonstrate they are factoring in environmental considerations into their management decisions, now and in the future.
Third, we have all read about the real sense of disappointment felt by those that attended the climate talks in Copenhagen. Many are now arguing that the whole UN-led process is flawed and that the focus must shift from political leaders to business leaders.
If this is the case, it will simply reinforce the pressure on business to manage their emissions and plan for a changing world climate. Institutional investors have laid down the gauntlet – future decisions about capital investment will be strongly influenced by such considerations. As business owners they are likely to seek to influence the public policy debate about climate change; and they will expect the businesses in which they invest to be equally committed to taking action.
Major investors call for disclosure of companies’ climate risks and opportunities
A supplemental petition was submitted to the US Securities and Exchange Commission (SEC) recently by a broad coalition of 20 institutional investors. The petition asks the SEC to provide interpretive guidance outlining climate-related ‘material risks’ – such as new regulations, physical impacts, new economic and business opportunities and other climate-related trends – that companies should be disclosing to investors. The 20 signatories to the petition include leading U.S. and Canadian institutional investors managing more than $1 trillion in assets, including British Columbia Investment Management, Pax World Management and treasurers from numerous US states. ‘Climate change is without question a material risk to businesses, and ignoring it is a disservice to investors,’ said Mindy Lubber, president of Ceres and director of the $8 trillion Investor Network on Climate Risk, which includes many members who submitted the petition. ‘We need to measure and disclose these risks so that both investors and companies can make financially-sound decisions.’
IFC and S&P launch low carbon index for emerging markets
The International Finance Corporation (IFC), part of the World Bank group, has teamed up with Standard & Poor’s to launch a carbon-efficiency index for emerging markets using data from Trucost, the London-based carbon analysis firm. The index was launched in Copenhagen on December 10, and the IFC said the new S&P/IFC Carbon Efficient Index aimed to mobilize more than $1 billion in capital investment for carbon-efficient companies over the next three years. The index will closely track the performance of the S&P/IFC Investable Emerging Markets Index – while reducing the carbon footprint of their portfolios by 24%.
Companies and their investors are failing to take changes in weather patterns properly into account in their investment decisions, according to a new report, ‘Managing the Unavoidable: investment implications of a changing climate’, published recently by Henderson Global Investors, Insight Investment, and the Universities Superannuation Scheme (USS). It highlights that most attention has been paid to extreme weather effects (flood risk, increased ferocity of storms), but that much less attention has been paid to the incremental changes of changing weather patterns such as the effects of incremental rise in ambient temperatures on building performance and energy efficiency. It calls on investors to play a much more proactive role in public policy debates on adaptation, highlighting a need to develop long-term policies which enable companies to plan and invest appropriately.
Study finds a growing demand for ESG advisory services
The European Sustainable Investment Forum (Eurosif) published a report on December 2, finding that 89% of investment consultants anticipate an increase of client interest when it comes to environmental, social and governance (ESG) issues. The study, sponsored by AXA Investment Managers, Bank Sarasin, Robeco and SAM, outlines how the demand for investment consultants to take into account ESG issues is driven by a mixture of investor reputation, beneficiary pressure and an evolving view on fiduciary duty.
Nearly all US investment consultants surveyed agree responsible investing is here to stay
US investment consultants believe that the growing interest of their clients in environmental, social and governance (ESG) investing issues is not going to be a short-lived phenomenon. Nearly nine out of 10 (88%) believe that client interest in ESG will continue to grow over the next three years, and none believe it will decrease, according to a new survey conducted by the Social Investment Forum and Pensions & Investments, released on December 2.
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