It won’t be long before the application of environmental, social and governance criteria to assets is no longer seen as a particular sector within investing, but pervasive for all investors, finance leaders said at the conference. annual meeting of SIFMA.
This year’s conference, which brought together leading figures from the banking, asset management and advisory sectors, was held the same week as the COP26 global climate summit, during which some 450 financial companies around the world have pledged to achieve net zero carbon emissions by 2050, and a global standards body for ESG labeling has been established.
The surge towards unified standards for green investing underpinned much of the discussion at the event, especially among those in the asset management and investment space.
Marty Flanagan, chairman and CEO of Invesco, said in a few years, “we’re not going to talk about ESG as something separate from investing.”
“It’s not a marketing gimmick, it’s something fundamental to investing in and I think that’s really where things are moving very, very quickly,” Flanagan said.
As financial firms largely embrace change, the rapid pace at which it is accelerating is increasingly client-centric, said Suni Harford, Chairman of UBS Asset Management and UBS Group Board Sponsor for sustainability and impact.
Harford said a recent UBS survey of high net worth clients found that two-thirds of respondents view sustainability as very important to their portfolio performance, and 78% believe sustainable investments will maximize their returns.
“So it’s not just about aligning their values with their investments anymore,” Harford said.
“Rational investors who are primarily looking to increase their returns increasingly believe that sustainability offers a superior advantage over conventional investing.”
This underscores the important role asset and investment managers play in educating their clients on these issues, Harford said. She said the primary responsibility of companies in this area is to “educate and help our clients manage the sustainability risks in their portfolios,” rather than telling them what their portfolio goals should be.
“Our job is to provide them with the choice they seek to affect the changes they want to see,” Harford said.
U.S. Assistant Treasury Secretary Wally Adeyemo told the conference that efforts by the financial sector to mobilize capital toward sustainable development efforts are a crucial part of tackling the existential threat of climate change. The commitment of the Glasgow Financial Alliance for Net Zero, whose companies represent some $130 trillion in assets, to achieve net zero carbon emissions in their portfolios by 2050 marks a step forward on this front, but greater transparency is needed to ensure these efforts are effective, Adeymo said.
“Fundamentally, the truth here is that in order for us to move from making commitments to actually getting things done, those goals are going to have to be credible and transparent to drive accountability,” Adeymo said.
Efforts by regulators to establish clear and unified labeling standards will also help the space mature, Flanagan said, noting that the stigma associated with “greenwashing” wallets is detrimental to the industry as a whole.
“[Greenwashing is] not good for the industry and I think it’s a good thing that regulators are taking this because it’s a problem for everyone,” Flanagan said.
Harford cautioned, however, that the need for funds that do not meet sustainable criteria will always exist and that the rapidly growing regulatory framework surrounding sustainable investing should remain flexible enough to adapt to the changing space.
“We certainly need regulation, but it needs to be flexible enough to keep pace with change, and we need to be very careful not to over-define what is and is not sustainable today, otherwise we could stifle much-needed innovation tomorrow,” Harford said.