Investors Focus on Sustainability
David Blood, co-founder and senior partner of Generation Investment Management, said the business case for sustainability has become compelling and robust since the firm launched 12 years ago.
Blood moderated a panel, Institutional Investors: Examining the Long Term, at the Milken Institute London Summit on 13 October. Generation Investment Management, whose chairman is Al Gore, was established in April 2004 to deliver higher returns through consistently taking a long-term view and fully integrating sustainability research within a framework of traditional financial analysis.
“When I retired from Goldman Sachs and said I was going to start a sustainable investment firm people told me ‘you are a nut’,” Blood said. “The conversation has changed over 12 years and the business case has become very compelling and robust.”
Eugene O’Callaghan, director of the Ireland Strategic Investment Fund, said on the panel that the fund has been a proponent of ESG investing for some time and was one of the original signatories of the Principles for Responsible Investment from the United Nations.
“Many ESG services have been developed for listed securities but that does not apply to the same extent to private equity or private market investments,” added O’Callaghan. “In Ireland the biggest contributor to CO2 emissions is farm animals but the agriculture sector is economically important and that is something we are wrestling with.”
Until the financial crisis the Ireland Strategic Investment Fund was a sovereign wealth fund investing globally but 80% of its assets were used to bail out the two Irish largest banks. The fund’s mandate has changed so that every investment is made on a commercial basis to support economic activity in Ireland in terms of employment or GDP growth.
Torben Möger Pedersen, chief executive of PensionDanmark, said on the panel that funds do not have to choose between investing for good and good business.
The Danish fund invests in office buildings which are classified as sustainable by using materials sourced from local neighbourhoods and through their energy and climate change policies. He continued that this makes good business sense as energy-efficient buildings attract better tenants and have lower running costs than traditional buildings.
Möger Pedersen said: “We look at ESG across all asset classes but that is easier for listed equities where we can engage. We need to find a way to introduce ESG in private equity and credit markets.”
PensionDanmark is Denmark’s largest labour market pension fund. The defined contribution scheme receives €2bn a year in contributions and has assets under management of €25bn.
Möger Pedersen said about 10% of the fund has been invested in renewable energy. “If we have to choose between a fossil fuel or renewable energy investment and they have the same overall risk and return profiles, we would opt for the renewable.”
Ceres , a nonprofit organization which directs the Investor Network on Climate Risk, a group of more than 110 institutional investors with collective assets of more than $13 trillion, said in a report today that carbon asset risks in the fossil fuel industry have becoming an increasing concern.
Shanna Cleveland, director of the Carbon Asset Risk Initiative at Ceres, said in the report: “While companies used to see climate change as a minor and strictly long-term regulatory concern, they are now beginning to see it as a more immediate risk to their business strategies. As a result, fossil fuel companies are taking a much harder look at what a low-carbon future will mean for their businesses.”
The report said majority of global investors this year supported proxy access resolutions at 23 of 33 leading oil companies despite company opposition. “Nearly all of these resolutions were driven by investor concerns that company boards lack diverse perspectives in approaching low-carbon global trends and carbon asset risks,” added Ceres.
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