Be transformational

The author Anna Lappé famously said “every time you spend money, you’re casting a vote for the kind of world you want.” The same can be said when it comes to investing. So be transformational with your money… or be ready to the fact that winter is not coming anymore.

To be transformational does not mean to trade performance for sustainability. Integrating ESG aspects into equity research has proven to be very beneficial, not only from a sustainability perspective but also a financial one. According to calculations made by Nordea’s sustainable finance team, moving your pension savings to sustainable funds can be 27 times more efficient than classical ways of reducing your carbon footprint such as adjusting your lifestyle and spending habits.

Using the words of Mark Carney, “every private finance decision must take into account climate change and how to decarbonise the world economy to net zero. Achieving net zero emissions will require a whole economy transition – every company, every bank, every insurer and investor will have to adjust their business models. This could turn an existential risk into the greatest commercial opportunity of our time”. Achieving an economic transition wasn’t “about funding only deep green activities or blacklisting dark brown ones. We need fifty shades of green to catalyze and support all companies toward net zero” he added.

In front of an active generation, governments, companies and investors should now understand that the most efficient solution is based on were the money is. A consumer revolution is ongoing. Making your money matter and being proud of it, is ongoing as well. The fiduciary duty of pension funds and asset managers is not only due to their shareholders and clients but also to the world and their citizens.

Intergenerational justice is also a duty of every investor.

The purpose of investment is not to steal our kids’ future. Intergenerational justice is also a duty of every investor. Initiatives, like the UK’s brilliant “make my money matter” and “client earth” initiatives are awakening calls towards pension investors and legal frameworks. Those are turning the tide. The “Make my money matter” initiative raised the question: What’s the point of saving for retirement if you don’t have a world you want to live in and retire in? “Client earth” is a charity company, registered in England but expanding all around the world, that uses the power of the law to protect the planet and the people who live on it. Their track record – for example in the fight against coal – is outstanding, with the annulation of multiple plant permits. But it’s even bigger than that. In June 2020, the new Danish government in office created one of the most robust laws on climate change. This law will force the Danish government to find a yearly majority parliamentary approval of its climate strategies. By doing so, politicians will not be able to hide behind the short-term cycle of government, arguing that they were not involved to take decisions, at the time of previous government. This could be an inspirational blueprint for democratic governments. Let see if governments can reach another milestone of having climate change embedded into constitutions.

Evidence shows that sustainable, resilient, well-run companies are more likely to outperform in the long run.

Don’t be confused, this isn’t just a moral or political question, it’s a financial one too. Evidence shows that sustainable, resilient, well-run companies are more likely to outperform in the long run. Companies that do harm are riskier places to invest in for the long term because they face a future of increasing consumer criticism, government regulation and financial penalties. So investing in responsible businesses means you can build a better world while giving your money a chance to achieve better returns at the same time. The case study is well and truly proven. There is a growing body of evidence showing that sustainable investing already outperforms traditional investing. In essence, the integration of sustainability issues into a company’s business model and strategy may be a source of competitive advantage for a company in the long-run. “A more engaged workforce, a more secure license to operate, a more loyal and satisfied customer base, better relationships with stakeholders, greater transparency, a more collaborative community, and a better ability to innovate may all be contributing factors to this potentially persistent superior performance in the long-term”¹. As written by the Financial Times: “The outperformance of ESG strategies is beyond doubt”². Academics are still debating the question, but my priority is to focus on the future not on the past. Caring about my kids future is what I have to do, avoiding as much as possible brain calcification of what was in the past. My kids are, in this field, my coaches.

While Covid 19 teaches us that the worst could happen, keep in mind the words of Mark Carney, “we can’t self-isolate from climate change”. The opportunity to invest with sustainable purposes should not be missed as it was in 2008. If transparency was the leitmotif of the funds industry after the financial crisis, let make it concrete. Citizens of the world are not only demanding something to invest in, they seek something they believe in.

Citizens of the world are not only demanding something to invest in, moreover, they seek something they believe in.

¹ Harvard Business Review paper from Robert G. Eccles, Ioannis Ioannou, and George Serafeim https://www.hbs.edu/faculty/Publication%20Files/SSRN-id1964011_6791edac-7daa-4603-a220-4a0c6c7a3f7a.pdf

This is true for both a high ESG-rated strategy (ESG tilt) and an improving ESG strategy (ESG Momentum) see MSCI paper https://www.msci.com/www/research-paper/research-insight-can-esg-add/0182813629

² https://www.ft.com/content/9254dfd2-8e4e-11e7-a352-e46f43c5825d