Now more than ever, companies and investors are altering their behaviors in ways that demonstrate a heightened focus on sustainability considerations. This is not purely about driving positive change – it is just as much an understanding that sustainability can have real financial implications. Companies are recognizing that it impacts their bottom lines and investors are investing accordingly. In turn, the idea that sustainable investing is becoming mainstream continues to take root. Just in the past month, we've seen a number of significant developments from investors and corporations.
World's largest pension fund requires ESG integration
During the World Bank / International Monetary Fund spring meetings in Washington DC in early April, Hiro Mizuno, Chief Investment Officer of Japan's Government Pension Investment Fund, stated that the fund "requires all asset managers to integrate ESG into their investment analysis and decision-making." This is a remarkable statement from the world's largest pension fund, reiterating that sustainability is a core element of its investment approach rather than merely a satellite, and with the clear objective of "ensuring sustainable performance". It also reflects that, as a fiduciary, embedding sustainability into the fund's investment approach is a move made in the best interest of plan participants and their beneficiaries.
Companies taking similar action
Companies are also taking action on sustainability initiatives. Xcel Energy announced a commitment to provide 100% carbon-free electricity in all service areas by 2050, becoming the first major US utility to do so. This comes at a time when states like New York, New Mexico, and Minnesota are developing their own decarbonization policies, and for companies like Xcel, such commitments are smart business. Similarly, Samsung announced a plan to replace plastic packaging in all products with environmentally sustainable alternatives and to collect 7.5 million tons of discarded products by 2030 – a move that gets ahead of increasingly stringer regulations on plastics and considers consumer preference for environmentally friendly products. And most recently, Beyond Meat just went public, enabling individual investors to get direct exposure to the manufacturer of plant-based proteins. With factory livestock producers' overall emission levels surpassing those of the heavily polluting transportation sector, exposure to alterative proteins could be seen as an opportunistic play on cross-elastic demand.
Our clients show similar preferences
We see similar trends among our client base and expect this to continue as the gap closes between what clients care about and how they invest. The latest statistics are available in UBS' fall publication, Investor Watch: Return on Values, which notes that 39% of global investors surveyed have at least 1% of their assets in sustainable investments. While this overall number is expected to grow, some geographies should expect more accelerated growth than others. The growth rate for US investors' adoption of sustainable investments is expected to be the highest globally in the coming years, from a low base of just 12% currently owning sustainable investments in their portfolio.
We are reminded of the importance of sustainability to investments more and more frequently these days. These are neither niche considerations nor ones that investors can afford to ignore. From the climate-driven bankruptcy of PG&E, to the governance lapses at Nissan Renault, to the ongoing strategy shifts at energy and utility companies, to the impact of changing consumption preferences on food producers, retailers and restaurants, it is clear that sustainability factors have meaningful impact on business models and brands, and can positively or negatively affect long-term investment performance.
Andrew Lee, Head Sustainable & Impact Investing Americas, UBS Financial Services Inc. (UBS FS)
Laura Kane, CFA, CPA, Head Thematic Research Americas, UBS Financial Services Inc. (UBS FS)
Andrew Little, Sustainable and Thematic Investing Associate, UBS Financial Services Inc. (UBS FS)
Michelle Laliberte, CFA, Thematic Investment Associate, UBS Financial Services Inc. (UBS FS)
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