If sustainable investing is so widespread, is it even innovative anymore?
Every January, Larry Fink, CEO of American investment giant BlackRock writes his annual letter to global CEOs. Its publication generates a flurry of thought leadership pieces commenting on the rise of sustainable investment. In fact, the publication of his letter has become something of a blockbuster annual event within some sustainability circles. This is because, for many years, Mr. Fink—hardly a be-sandled treehugger—has extolled the virtues of sustainability, and its importance for investment returns. In this year’s letter he explains, “We focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients.”
The fact that BlackRock—with more than $9 trillion in assets under management—is so vocal on sustainability issues, is reflective of a wider trend towards sustainable investment. The latest detailed review by The Global Sustainable Investment Alliance (GSIA)—a membership group of global sustainable investment organisations—found that 35.9 per cent of total assets under management are now sustainable investments.
Behind the GSIA’s headline figure is a loose and inclusive definition of sustainable investment that incorporates a broad range of practices. These range from simply screening out the worst companies based on minimum standards, to systematically incorporating environmental, social, and governance factors into financial analysis.
Several key challenges also remain for sustainable investing, with the UK’s Investment Association (IA) citing issues related to data as a top impediment in its latest global ESG survey.
Taking this into account, there is still plenty of space for innovation. Investment comes in many shades and flavours, and at Springwise we have seen several recent innovations that aim to make various types of investment more sustainable. Here are five of the best.
As the IA survey cited above highlights, integrating ESG factors into the nuts and bolts of investment decision-making remains a key challenge. To sustainable wealth manager Arvella Investments, risk-adjusted returns are the key to ESG integration being taken seriously. The Paris-based investment house felt that existing ESG integration tools were not sufficiently focused on this all-important metric – so they built their own. The software is free-to-use and currently comprises two tools. The first adds the third dimension of ‘impact’ to the traditional trade-off between risk and return, while the second investors to take a dataset and identify which two or three ESG improvements could boost each company’s value the most. Read more.
Equity crowdfunding—the online offering of securities in early-stage startups—is a market that has a reputation for being overwhelming to new investors. In response, a new platform, JUSTLY Markets, aims to promote greater transparency for such crowd-sourced investments. JUSTLY provides a space for investors of all incomes to find and invest in companies that reflect the values of diversity, sustainability, and social consciousness. The JUSTLY platform will provide investors with research and other relevant information from respectable independent third-party companies on ESG, fundraising and other related topics. Read more.
Generate Capital raises funds for sustainable infrastructure projects using a model inspired by software-as-a-service (SaaS) offerings. The company partners with companies or communities, providing them with the capital to build sustainable infrastructure projects, such as geothermal power plants. Once the project is ready, Generate buys the asset from the developer and operates it, selling the service to customers. Instead of raising private equity funds, the firm offers institutional investors the opportunity to buy stakes directly in the firm. This capital is then used to back long-term development projects. Generate invests solely in businesses whose projects will decentralise infrastructure and reduce carbon emissions. Read more.
Venture capital group Single.Earth has developed a way for landowners to earn money for under-utilising their land. The firm’s online platform allows forests, wetlands and other natural areas to generate income by being left alone – eliminating the need for their owners to sell their resources in order to turn a profit. Instead, owners are rewarded for preserving ecosystems. Single.Earth works by tokenising privately-owned natural resources and areas of ecological significance. Investors then buy the tokens and are given carbon offset credits in exchange. The tokens will increase or decrease in value over time, based on the value of the offsets, and can be traded like other commodities. Read more.
Dutch design firm Clever Franke has teamed up with Swiss Bank Globalance to create a ‘Google Earth’ for investors. The platform maps the macro-level social and environmental effects of portfolios through four perspectives: climate, megatrends, footprints, and returns. Through a series of data visualisations, users can review the impact of entire market indices or individual companies, and with a Globalance portfolio, they can also get personalised maps that show the impact of their personal investments. For example, data visualisations can illustrate if a portfolio aligns with the two-degree climate stabilisation plan set by the Paris Agreement. If the globe is covered in orange landmasses, then the warming potential of the portfolio is too high. Read more.
Words: Matthew Hempstead
2nd February 2022