The climate is changing, and so are investors

May 8th, 2019

Amid mounting environmental and sustainability concerns, Christian Sadler tracks reasons for optimism emanating from the City.

Around the streets of London, transport is adjusting to life in the Ultra-Low Emission Zone while the city’s thoroughfares have been cleared of Extinction Rebellion’s protest. The UK government is being encouraged to introduce legislation that will reduce greenhouse gas emissions to zero by 2050, the toughest target for any major economy.

London is also in the frame as the host city for the 2020 UN climate change conference, the largest since Paris, and Britain currently boasts the largest installed offshore wind capacity in the world.

People power and governments, however, are just one part of the climate change story. Big business has a defining role to play if global emissions targets are to be met and we are to create a more sustainable future. And it’s a challenge that is gaining traction.

Time to Rethink Sustainability 

At Bloomberg Media Studios, we recently created a business content campaign in partnership with Lombard Odier Investment Managers, aimed at C-suite executives and investors, which highlighted just how large the sustainability challenge is.

Sustainability is driving an economic revolution, and for businesses the message is unequivocal: adapt or die. “When it comes to factoring sustainability in investment portfolios, companies that don’t adjust will disappear,” said Carolina Minio-Paluello, Global Head of Solutions at Lombard Odier IM.

The company believes this sustainability revolution will drive returns for investors in the future. “It will affect every corner of the global and every asset class in every investment portfolio,” Minio-Paluello warns.

By leveraging two of Bloomberg Media’s USPs ­– proprietary data and unbiased analysis – we were able to map out the broad, complex topics that encompass sustainability. We enlisted Bloomberg Intelligence analysts and engaged with industry experts to create a series of videos, features and infographics to highlight the need to Rethink Sustainability.

Turning Risks into Opportunities

Lombard Odier has identified five global megatrends that are already having a material effect on the environment in which companies operate:

  • Demographics—the global population is expected to reach 10 billion by 2050
  • Scarcity of natural resources—humans consume 170 percent of the Earth’s resource capacity every year
  • Climate change—we are continuing to head towards CO2 concentrations not seen since the Pliocene epoch, 3 million years ago
  • Inequality—millions of people lack access to clean water, healthcare, basic goods and services, and capital
  • Digitalisation of the global economy, which is already disrupting many industries.

This is a story that doesn’t have to end badly. The world of finance is where many of the levers of power and influence are, and sizable businesses are now recognising the need to adopt a sustainable approach to investments and their own operations.

Progress is being made. Globally, there were $22.89 trillion of assets being professionally managed under responsible investment strategies in 2016, up 25 percent on 2014, according to the Global Sustainable Investment Review. In relative terms, responsible investment now stands at 26 percent of all professionally managed assets globally.

A Changing Climate for Investors

Investors have never been more proactive in ensuring their capital is used in ways that reward a sustainable and transparent approach to the environment. According to insurance specialist Lloyd’s of London, in the past four years some 436 institutions and 2,040 individuals—spanning 43 countries—have committed to divest away from fossil-fuel companies. That represents $2.6 trillion in assets.

Investors’ appetite for climate (or green) bonds– an investment product used exclusively for climate and environmental-related initiatives–is also growing fast. In 2018, the market for climate bonds grew by around $150 billion and it is now approaching $500 billion in outstanding issuances. The OECD is projecting that climate bonds will be a $5 trillion–$6 trillion market by 2030.

These are huge numbers by any measure. Investors are also more engaged in tracking the environmental impact of companies they have already invested in. Climate Action 100+ is a coalition of some of the world’s largest investors that are pressuring fossil-fuel giants, including Shell, BP and Glencore to release near-term climate targets, detail how their investments align with the UN Paris accord, and commit to capping their coal output.

Building a Better Future

The global growth in sustainable investing demonstrates the increasing demand among investors for greater disclosure and consideration of ESG (Environmental, Social, Governance) issues.

“We do not see sustainability as a threat to the future of our economy,” explained Lombard Odier’s Minio-Paluello. “We believe it is the future of our economy, and a major driver of investment returns. It is time to rethink sustainability.”

With people power, regulation and the financial power wielded by the investment world, all pulling in the same direction, we have a much better chance of building a sustainable future. From the financial world to the city streets, there are plenty of signs of tangible action aimed at tackling climate change that could help change our world for the better.

Christian Sadler, EMEA Commercial Editor, Bloomberg Media Studios

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