Climate change means that sustainability has gone mainstream – also in investing. Investors have great power when it comes to paving the world more sustainable. How has sustainable investing changed and will change the world, business, and investment? And finally, can it change the world?
It was a moment some called “unprecedented.” 58 investors who acted under Climate Action 100+ -initiative made a bold move to pressure British Petroleum. Together these investors own bit under 10 percent of the company. The investors wanted the company to commit to the Paris Agreement goal, which aims to limit global warming to 1.5 Celsius. Under pressure, BP agreed. The same group of investors has used its shareholder power to gain commitments from giants like Shell, Equinor, and Glencore.
Climate Action 100+ consists of more than 360 investors. Together they have over 34 trillion dollars (30.5 billion euros) in assets under their management. Investors voicing their concern over sustainability matters is not new as such. But recently, investors have increasingly translated their words into action and collaborated to push real changes. As it seems some global problems become more acute by the day, it feels like investors are flexing their muscles.
And it looks like many companies are listening. More and more companies have started to see their role beyond making profit. In KPMG’s Global CEO Outlook from 2019, 43 percent of Nordic CEOs said companies should look beyond purely financial growth to achieve sustainable success. A significant part of millennial consumers for example, consider the primary goal of a company to be improving society. Green bonds, sustainability bonds, social bonds, and bank loans with Environmental, Social, and Governance (ESG) principles embedded in loan pricing have been in demand. Can money save the world?
Annareetta Lumme-Timonen is the investment director of Solidium, a state holding company. Solidium is built on the purpose of “strengthening and stabilising Finnish ownership in nationally important companies and to increase the value of its holdings in the long run.” Annareetta Lumme-Timonen has been working at Solidium from its founding ten years ago and is also active in sustainable investors’ organization Finsif.
“The tipping point has been reached, sustainability thinking is becoming mainstream,” says Lumme-Timonen.
Lumme-Timonen names globalization as one of the key trends that turned everything around. Value chains got longer and simultaneous demand for trans-parency grew, she explains. Good environmental management or sound labor practices, for example, became increasingly important contributors to business success. In some way, she sees the current trend bit similar to the situation a hundred years ago.
Investors realize that sustainable investing does not mean sacrificing performance.
At the KPMG office in Helsinki, Ari Kiuru, Head of Capital Advisory at KPMG Finland, talks through an impressive pile of slides on sustainable investing. There is no shortage of information on the topic, another indicator of how the subject is not only in the mind of investors, but also companies looking for financing.
"For the past few years or so, sustainability has been a matter that is discussed in various contexts that affect business," Kiuru says. “Regulation works definitely as a pulling factor. For example, when the EU is drafting goals to fight climate change, it is simultaneously drafting guidelines for financial instruments that support meeting these goals,” Kiuru describes.
Kiuru says that investors increasingly want to have a dialog with companies on how they embed sustainability and ESG issues in their operations. Previously, in a corporation, sustainability issues might have been one person’s responsibility; now sustainability matters are deeply embedded in all levels of company operations. Especially for listed companies, there is no choice but to listen to the owners. And if owners communicate the need for an increase in sustainability, this will inevitably change the way companies operate, Kiuru adds.
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