ESG-COMPLIANT? INVESTING FOR GOOD…
Investing can be a challenge as new technologies continue to disrupt virtually every industry. Analysing the market and uncovering opportunities, choosing the appropriate investments, monitoring and assessing market dynamics while rebalancing your portfolio…sounds like a handful? It is. As investors we persistently look for ways to improve the risk/reward characteristic of our investments. Exploring different avenues of adding diversification can often lead to pleasant surprises.
That’s not to suggest jumping into new and unproven strategies without fully understanding and evaluating potential risks and rewards. We believe that every investment analyst should know about the risks and opportunities of environmental, social, and governance (ESG) issues and the implications of ESG factors on strategic asset allocation.
A landmark accord in which signatory countries finally agreed on a ‘Paris rulebook’, a document containing guidelines on cutting carbon emissions and implementing the Paris Climate Agreement. But the world’s climate goals cannot be achieved without continued close cross-sector partnership and collaboration.
Clean energy infrastructure or sustainable investing is fast becoming a significant asset class for behemoth institutional investors (controlling over $82 trillion in assets) following the historic Paris Agreement and the U.N. Sustainable Development Goals. In the U.S. alone, institutional assets invested under ESG principles totaled $4.73 trillion at the start of 2016, a 16.9% increase from 2014 … “Assets continue to pour into investments promising something beyond only returns”
Over 40 countries have already implemented a carbon tax that will make polluters or companies with a high carbon footprint pay. Similar to real estate and private equity, investments in infrastructure require longer investment time horizon due to the lifecycle of projects. However for those investors that have the capacity to include illiquid assets in a diversified portfolio, cleantech infrastructure is an excellent consideration due to its low correlation to other assets and intensifying regulatory and reputational pressures on fossil-fuel mining and power generation.
At RiskMinds, Elion House CIO, moderated a panel of institutional investors including Swiss Re, Peak Re, and IFC’s Asia Chief Investment Officer who estimates clean energy to be a $20 trillion opportunity. The panel highlighted a global trend by institutional investors who control around $70 trillion to decarbonise their portfolios away from fossil fuel investments into impact investments that meet environmental, social, governance criteria or are ESG compliant.
Benjamin spoke about the impact on static portfolio investment management by disruptive technologies and a need to rethink concepts of finance and business in order to keep up with the pace of technological progress. Many institutional investors and corporations around the world have set up flexible venture capital funds focused on investing in new technologies. In particular, he spoke on how to structure low-risk ESG-compliant cleantech infrastructure assets predicated on new clean energy technologies. (Learn more)