Case studies with real financial consequences like the climate-related bankruptcy of US utility PG&E (January 2019) serve to hasten corporate action.
Last week, the Sustainable Food Policy Alliance, led by industry heavyweights Nestle USA, Unilever North America, Mars Inc. and Danone North America, released a set of climate principles and urged US government action on issues including science-based carbon pricing, clean energy and infrastructure, asserting explicitly that "climate change impacts our companies, and we have a business imperative to reduce emissions."
This builds on concrete initiatives by individual members, which should deliver positive commercial results, while reducing environmental impact. Danone announced in March phase one of its new infant formula facility which, when complete, is expected to double the production capacity of the plant it replaces yet use 60% less water and 25% less energy, while reducing carbon dioxide emissions by 50%.
Elsewhere in the food space, Burger King announced in early April that it would pilot a meat-free version of its Whopper burger in partnership with startup company Impossible Foods. This hardly portends a wholesale shift away from meat consumption, but a broader rollout across the fast food chain's global base would help to mainstream meat alternatives and address evolving consumer preferences, with potential for positive climate and resource impact given the water intensity and methane emissions associated with beef production.
Some companies and lenders are even directly tying financial performance to sustainability. At the end of March, Spanish utility Iberdrola closed a EUR 1.5bn loan with favorable pricing contingent on compliance with two UN Sustainable Development Goal indicators targeting both ensuring universal access to affordable energy and increasing renewable energy's share of the global energy mix.
Investors too are acting on the link between sustainability and investment performance. Data released in April by the Global Sustainable Investment Alliance show that total "sustainable investing" assets reached nearly USD 31 trillion in 2018, while the Global Impact Investing Network reported that more focused "impact investing" assets topped USD 500 billion. While reporting issues and lack of agreement on definitions for these terms affect the comparability and accuracy of these statistics, it is clear that investor interest in incorporating sustainability into investing continues to grow globally. Sustainability risks and opportunities are integrally tied to profitability, business resilience, brand and consumer preferences, all of which can impact financial performance. Indeed, climate specific financial materiality and sector implications are outlined in an April report from consulting firm Mercer.
Just as forward thinking companies are recognizing the evidence and evolving their approach to sustainability for bottom line benefit, so too should investors incorporate sustainable approaches into their investments with a view toward long-term performance in lockstep with societal benefit.
Main contributors: Andrew Lee, Andrew Little
Product of the Chief Investment Office (CIO).