Many of us already make an effort to lead a sustainable lifestyle by recycling our waste, avoiding food miles or offsetting our carbon footprint. Another way in which we can help is by aligning our investments with our values.
“If we don’t do anything about climate change now, in 50 years’ time we will be toasted, roasted and grilled.” These were the words of Christine Lagarde in 2017, back when she was the head of the IMF. Two years on we are experiencing record numbers of wildfires, hurricanes and tsunamis globally and Europe is witnessing unprecedented levels of flooding. And it’s not just climate change that we need to be concerned about when it comes to protecting the planet for future generations: pollution, deforestation and irresponsible farming methods are all contributing to the death of the planet. We cannot afford to simply sit back and assume that it is someone else’s problem – it’s a shared responsibility.
Aligning investments with values
Many of us already make an effort to lead a sustainable lifestyle by recycling our waste, avoiding food miles, offsetting our carbon footprint etc. Another way in which we can help is by aligning our investments with our values. And the good news is that altruistic investing need not limit your return potential. You can make an investment in your family’s future at the same time as considering financial gains.
Our key strategies in the area of responsible investing are sustainable and impact investing.
Sustainable investing – a growing priority for investors
Global macro trends are changing the context in which businesses operate faster than at any time in history and this is pushing consumers, businesses and governments to pay more attention to environmental, social and governance (ESG) issues. A full body of literature shows that long-term financial success is built on proper governance and consideration of social and environmental factors. At Julius Baer, we make sure that the ESG perspective is integral, rather than peripheral, to our investment process.
Any institution has to actually have climate-change risks and protection of the environment at the core of the understanding of its mission.
Our premise is that, over time, shareholders can increase their returns by investing in companies that maximise their financial performance through strategically managing the effect that their businesses have on the societies and natural environments in which they operate.
What the United Nations hopes to achieve
In 2015, the United Nations launched its Sustainable Development Goals (SDGs) for 2030. This global framework consists of 17 goals ranging from environmental and social issues to political and global partnership topics. The aim of the SDGs is to achieve a better and more sustainable future for all, promoting prosperity while protecting the environment. To combat issues like climate change and poverty, governments realise that they need help from the private sector.
Thematic investing focuses on businesses and companies which are aligned with these goals. In such strategies, sustainability originates from the long-term approach of the business. Themes include clean energy, water, biodiversity, education or sustainable cities.
Impact investing aims to generate a positive social or environmental impact. You can achieve this either as a shareholder or by directly financing companies/projects. So-called ‘green bonds’ are a part of this style of investing.
Green bonds are issued in order to raise funds to finance new and existing projects that deliver positive environmental and/or climate benefits. Examples of projects that qualify for green bonds include renewable energy, pollution prevention, sustainable water and waste management, green buildings, climate change adoption and clean transport.
The sector has more than doubled in size since 2016. Bond issuers are coming under increased pressure to articulate their sustainability strategies and green bonds could be one part of these. Central banks are getting in on the act and indeed the future President of the European Central Bank has even commented that the ECB might invest even more in the segment if the green bond market were bigger.
Aside from the comments from financial leaders, climate change is now front page news on an almost daily basis, as a result of the protests that began with an unknown 15 year-old schoolgirl in 2018, which have now seen her develop into a globally-recognised climate change protestor. The ‘Greta effect’ is only likely to increase interest in the sector from both issuers and investors alike.