“At Standish we strive to steer our client portfolios to the point where sustainability values meet investment value. When sustainability values ultimately enhance investment value, this supports success in maximizing expected returns and mitigating risk, the cornerstone of our investment process.”Stephan Bonte, CFA, Head of Sustainable Investing at Standish
I have witnessed tremendous growth in investor appetite for sustainable investing in recent years. Historically, interest came only from a small sub-set of investors, typically foundations or religious groups interested in particular exclusionary screens based on their specific value set. Now, a wider range of investors, including pension funds, insurance companies, endowments and sovereign wealth funds, appear to be interested in a broader range of environmental, social and governance (ESG) issues, such as climate change, water risk and human rights. I am also seeing unprecedented alignment between private sector priorities and society’s best interests as these same issues rise to the top of the societal agenda.
Interestingly, while U.S. Investors had a bit of a late start on ESG/Sustainability compared to their European peers, I’d argue the US is now closing the gap; this is similarly changing in other lagging regions such as Asia. For green bonds alone, we have seen issuance grow from almost nothing in 2012 to nearly $100 billion globally in 20161. While still a small portion of global issuance, this is an exciting development for us and our clients as it adds to the levers available to drive returns and manage risk. For our environmentally-minded clients, it may provide one of the best vehicles to finance green projects. As an Executive Committee Member of the Green Bond Principles, Standish participates actively in the development of this growing market. The level of excitement from issuers, regulators and investors is tangible, and appears to be growing.
Clean energy and climate change considerations have also come to the forefront of many conversations. I see two main drivers for this. First, perceptions regarding climate change seem to have changed a lot in the past few years, especially in the US. The Paris Climate Agreement last year in particular galvanized stakeholders. Second, the “E” in ESG is relatively simple to objectively measure – which makes it easier to integrate climate considerations into our portfolios.
I believe that fixed income investors will play a fundamental role in meeting the 2 degree objectives set in Paris. While estimates vary, the International Energy Agency (IEA) estimates $13.5 trillion dollars of investments will be required between 2015 and 2030 to transition to a low carbon economy2. This will not be driven by corporations or equity markets alone, but by a combination of sovereign debt, local government projects, securitized assets, multilateral development banks, etc. So in my view, green bonds are just the tip of the iceberg. I believe we are on a strong upward trajectory and I anticipate further industry collaboration to advance environmental, social and governance objectives for investors and society.
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