How sustainable investing will become the norm

To put it frankly, channeling your capital based on environmental, social and corporate governance (ESG) factors, has an impact.

“It creates pressure on companies to disclose more about what they’re doing and to potentially also change their practices,” says Ioannis Ioannou, a professor of sustainable investment at London Business School, Plaand a visiting professor at Miami Herbert University.

Sustainable investing is on the rise globally, with assets under management having surged from$30.7 trillion in 2018 to $35.3 trillion in 2020, according to the Global Sustainable Investment Alliance (GSIA).

But for investors looking to greenify their portfolio, the choices can be enormous – and often puzzling with continuous confusion around the basics such as what is sustainable investment, how to make sustainability profitable and where the field is headed.

Neste, a global leader in renewable and circular solutions, has for years offered investors an opportunity to channel their capital into solutions that mitigate climate change.

Today, Neste is included in several sustainability indexes such as the Dow Jones Sustainability Indices (DJSI) and the Stoxx Global ESG Leaders index.

The watershed moments

The turning point for sustainable investment came in 2006, says Tiina Landau, Sustainability Manager at Neste, and co-author of the book Sustainable Investing: Beating the Market with ESG published by Palgrave Macmillan in 2021. Before joining Neste, Landau worked for one of the largest mutual pension insurance companies in Finland.

In 2006, the UN launched its Principles for Responsible Investment (PRI), a voluntary initiative to encourage investors to consider ESG issues when making investments. “That was the first time a bunch of core investors sat in a room and thought: ‘What is responsible investing?’,” says Landau.

The PRI helped crystallize a definition of what sustainable investment was, and what those who wanted to follow those principles should do to ensure their money is invested wisely.

It took, however, another ten years or so after the release of the PRI for these investment criteria to spread more widely.

The Paris Climate Agreement of 2015 was the moment that sustainability became a priority for investors big and small. “Portfolio managers were starting to look at it,” says Landau.

Landau witnessed the change in attitude first-hand. She was taught in business school that mitigating risk meant spreading your portfolio across a group of companies in different industries.

Diversification is one way to head it off. But as Landau remarks, “You cannot diversify away climate change. Nobody can say I don’t have this climate change issue in my portfolio.”

Source: World Economic Forum
Author: Chris Stokel-Walker