The percentage of investments that are qualified as sustainable, continues to rise sharply every year. The largest part of this consists of so-called ESG investing. The abbreviation stands for Environmental (environment/climate), Social (society) and Governance (governance). The better a company scores on these three pillars, the higher its ESG rating. According to the European Securities and Markets Authority, the amount of ESG investments within the EU rose to 1600 billion euros in 2021. That is slightly less than 20 percent of the total number of publicly offered funds.
However, according to Duiker, investing according to the ESG pillars does not necessarily mean that an investment actually has a positive effect on the climate. “ESG investing takes ESG risks into account. So, for example, what is the risk of climate change on my investment? You see this way of investing more and more. But what is happening to a much lesser extent now is investing with a demonstrably positive impact on the climate. Do you ask yourself the simple question whether an investment really makes a concrete contribution to, for example, CO2 reduction, and is the answer yes? Then you can speak of a truly sustainable investment.”
Sustainable investing and returns don’t go hand in hand?
Some people still have the impression that sustainable investments are often less profitable, because taking climate into account also ‘costs’ something. A lot of research has been done into returns on sustainable investments, with varying results. In 2015, scientists from the University of Hamburg conducted a meta-study into all the studies that were then available on this subject. What turned out? In 90 percent of the cases, no negative relationship between sustainable investing and returns was found. Nearly 60 percent showed a positive association.
Diver also agrees that it is a misconception that sustainable investing and returns do not go hand in hand: “Traditional investments still do not really take into account external factors, such as climate change, human rights violations or loss of biodiversity, which affect can be on risk and return. That is not right, because those things do exist and they also have economic consequences. We are just not used to calculating with these factors, they are difficult to express in numbers. For a long time you could get away with that, but now that we are reaching certain limits on this planet, you will see that the tide is turning.”
A major role is reserved for pension funds. At the end of 2021, according to DNB, the Dutch funds collectively held more than 1,000 billion euros in shares on the stock exchange and in investment funds. Sustainable investing has increasingly become the standard within the pension sector, the VBDO concluded at the end of last year after conducting its own research. But the same report states that this has not yet translated into concrete, impactful action: “For example, more than half of the pension funds do not yet meet the climate commitment of the climate agreement and less than 1 in 5 funds have a strategy for implementing net-zero emissions targets.”
Exercising influence on your pension fund
Although this may not seem like it, as an individual you can indeed influence what a pension fund does with your money, says Duiker. “For example, contact the board office and indicate what you find important, or ask how sustainability is taken into account. And you’re certainly not the only one who does that.
In 2008 research by Zembla showed that Dutch pension funds invested in cluster munitions, among other things. Then a huge number of people sounded the alarm with their fund and a lot has changed since then. It also ensured that the pension funds have put a lot more effort into mapping out the preferences of their participants.”
Another recent report by the VBDO shows that insurers are still lagging behind the pension funds in the field of impactful sustainable investing. Could there perhaps be certain sustainability standards that the financial sector must collectively adhere to? Duiker believes that cooperation between all parties involved is essential in that case. “Nobody can do this alone, not even the biggest players. Suppose that certain standards for sustainable investment are indeed introduced, then it is in each party’s interest that they have been developed jointly. Indeed, there are already initiatives for that. What is then important is that those initiatives are ambitious enough. I want to advocate that the bar is set high, so that things really change.”
“Government must provide more guidance”
What is the role of the government in this? Or rather: what should that role be? Duiker: “You could say that sustainability is about public interests.
Source: this article was previously published in MediaPlanet, as an attachment to Het Financieel Dagblad.