Climate change, sustainability practices, and investment and asset management were a few of the central topics of the 2018 Sustainable Investment Forum, which met in New York City on Sept. 26. The event brought together banking experts, asset managers, and global institutions – including World Bank Group and United Nations (UN).
“We are here to transform the global economy. That is our role here,” said Christiana Figueres, convenor of Mission 2020, a climate change-action group. She was a keynote speaker.
Emphasizing the exponential growth in investments’ physical risk due to climate change, Figueres said mirrored growth in the finance world’s mentality is necessary. She urged the consideration of additional investment factors beyond profit.
“We are looking to change the rules of the game,” said Jacob Werksman, principal adviser to Directorate General for Climate Action at the European Commission.
Participants discussed the important roles played by ESG and SI in asset management.
“ESG” means “Environmental, Social and Governance.” It describes metrics for the impact a company’s behavior has on these factors.
“SI” stands for “Sustainable Investment.” That refers to an environmentally and socially sustainable investment.
These terms were used in the context of climate change during the panel named “Achieving the Sustainable Development Goals through Investment.”
The focus of this panel was to elaborate on methods investment companies could use to change their perceptions of ESG while also meeting the UN’s Sustainable Development Goals (SDGs).
Moderated by UN Global Impact’s Chief of Programmes, Lila Karbassi, the panel featured individuals who are working to integrate ESG, SI, and the SDGs into their companies’ initiatives.
How Can Sustainable Investments Be Integrated?
Among these speakers was Herman Bril, director of the Office of Investment Management for the United Nations Joint Staff Pension Fund. When asked about the trend of sustainable investing in his organization, he said, “It’s a process of learning by doing, step by step. The [SDGs] were not made for investors.”
Bril said integrating the SDGs into investment language requires a mixed approach that brings different perspectives together. To catalyze this integration, Anna Pot, the manager of responsible investments for APG Asset Management, said she recommends the use of standardization across companies and borders. She also said, however, that a lack of standardization should not dissuade companies from pursuing ESG and SI integration.
Also, Pot said conversations on sustainable investments should take place on two levels within organizations. First, they should happen at the internal level. Then, they should also happen at the board level.
Pot said ongoing discussions with in-house investment professionals can benefit when they involve accountants, boards and CFOs. In addition, they can streamline the process for finding responsible investment opportunities and taking advantage of them.
How Can These Systems Change?
Stuart Kinnersley, cofounder and CEO of Affirmative Investment Management, said he observed another point about sustainable investing. Although individual companies can and should engage in conversations and processes, a system-wide push for change is necessary.
“The financial system is not valuing that third dimension, the externalities such as climate change,” Kinnersley said.
Companies must be able to incorporate external, non-financial factors into their investment decisions. ESG factors, despite not being financial in nature, will still impact investments significantly.
According to Kinnersley, investments need to be conceived in a long-term lens that refrains from concentrating on risk vs. return.
Asset owners, corporate managers, and interested investors also need to promote investment dialogues on the long-term risks associated with the SDG system. However, Kinnersley also pointed out that in order for those dialogues to take place, data on ESG parameters is needed.
Alison Schneider, the director of responsible investment at AIMCo, said that data can not only inform companies, but is also necessary to educate their clients, many of whom may not understand how SI works.
As a strategy for collecting the data, Schneider said, companies should investigate what ESG factors are present in their corporate structure and behavior. Every asset class, derivative securities, and each investment stage needs to be considered. Leveraging ESG pressure points throughout the organization’s investment decisions can be fundamental in improving long-term performance while also encouraging SDG investment.
Schneider also said these practices can be used in emerging markets as well. Applying this focus to emerging markets and their infrastructures can allow for the development of valuable capital in emerging markets which can later be accessed.
What’s on the Horizon?
Looking to the future, the panel’s members identified several key items that will prove crucial for extending the presence of ESG and SI. One item was to develop powerful and efficient tools for tracking climate impact in order to better inform investors on corporate ESG factors. Another was to forge stronger relationships related to SIs, the SDGs, and ESG with established or developing banks, consumers and governments.
All in all, the approaches and solutions discussed throughout the 2018 Sustainable Investment Forum shared the following spirit that Mindy Lubber, president of Ceres, communicated.
“We need to act on a scope, pace and scale unlike anything we’ve seen before.”