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Tijd voor beleggers om een inhaalslag te maken voor duurzaamheid

10-07-2012 | Visie | Michael Baldinger

Rio+20 toonde hoe bedrijven voorop lopen wat betreft duurzaamheid. Beleggers lopen achter. Het is echter in hun eigen belang om een duurzaamheidsanalyse in hun beleggingsbeslissingen te integreren. Michael Baldinger, CEO bij SAM, legt uit. 

(Dit artikel is Engelstalig.)



  Key points
  • Rio+20 highlighted corporates’ leading role in sustainability agenda
  • Investors lag by 15+ years: only 7% of global assets are committed to ESG integration
  • Investment decision-makers should abandon conventional approaches to investing
  • Consideration of sustainability issues is part of delivering superior risk-adjusted returns
Guess who said this: "We have to bring this world back to sanity and put the greater good ahead of self-interest.” As a clue, this was part of a speech at Rio+20, the UN conference on sustainable development that took place in late June.

The same speaker also said this. "We need to fight very hard to create an environment out there that is more long-term focused and move away from short termism." As a second clue, it wasn’t a politician. The politicians’ collective contribution to Rio+20 was a depressing lack of vision.

The answer: Paul Polman, CEO of Anglo-Dutch consumer products group Unilever. He was in Rio to promote the idea of sustainable development goals (SDGs) to replace the millennium development goals (MDGs).

Mr Polman highlights the leading role that corporates are now playing in the sustainability agenda. Few would have forecast that prominence back at the original UN Conference on Environment and Development (UNCED) in Rio in 1992. But companies across the globe have indeed embraced sustainability strategies.

Corporates are setting the pace in sustainability
Companies have done so because they recognise that sustainability is a key contributor to their long-term financial success. “They have moved beyond sustainability reporting and now integrate sustainability into their strategic goals and key performance indicators,” explains Michael Baldinger, CEO of SAM, Robeco’s 100%-owned sustainability investing boutique.

What’s the rationale for that? “The importance that companies now place on drivers such as innovation, human capital management, and resource and energy efficiency confirms that they regard sustainability factors as essential to creating a competitive advantage and generating stakeholder value,” says Baldinger.

SAM’s CEO has an inside track on how corporates are behaving in this area, thanks to the annual Corporate Sustainability Assessment (CSA) that his company runs. A key indicator of this increasing recognition of the value of sustainability factors, he suggests, is the steady increase in participation rates in the CSA.

Moreover, each year approximately 90-95% of the participating companies choose to take part in the following year’s assessment. “That reflects a long-term commitment to improving their sustainability performance,” he says.

Investors are two decades behind
Corporates may be in the vanguard but it is a different story for investors. As chart 1 suggests, investors are lagging corporates by about 15 to 20 years in terms of understanding the impact of sustainability on financial returns. “Many large asset owners around the world are still not integrating sustainability factors into their investment portfolios,” notes Baldinger.

Chart 1: Closing the gap: investors lag corporates in integrating sustainability

integration-of-sustainability-best-practices.jpg 
Source: SAM

This is the inescapable conclusion from the 2011 Report on Progress from the UN Principles for Responsible Investment (UNPRI), the platform that brings asset owners together to exchange ideas on how to align investment decisions with long-term performance objectives.

The signatories to UNPRI may represent a hefty USD 30 trillion in assets. But signatories representing only USD 10.7 trillion—or one third of its asset base—fully integrate environmental, social and governance (ESG) criteria into investment decisions.

Moreover, further UNPRI analysis comparing the active assets of PRI signatories with the broader global capital base found that only 7% of all global assets are now committed to ESG integration.

Sustainability investing in numbers
sustainability-investing-in-numbers.jpg   

And there is evidence that investors’ progress in embracing sustainability has been sluggish even in the most advanced countries. Take Switzerland. Studies by Eurosif and Swisscanto suggest that only 40% of Swiss public pension funds and 15% of corporate pension funds have incorporated some form of sustainability investing into their investment strategies.

Gap between trend-setting corporates and their pension funds
Something interesting is going on here. A quick glance at the list of UNPRI signatories reveals a discrepancy: many corporate pension funds of companies that have been identified as sustainability leaders are glaringly absent from the list of signatories to the UNPRI.

How is this possible? Why is it that the senior managements of major companies are making tremendous efforts to run their organisations more sustainably but the pension fund managers who run the retirement money for the companies’ employees are ignoring the sustainability agenda?

Baldinger thinks he knows why. “Long-term trends have a much more immediate and scalable top- and bottom-line impact on corporations,” he says. For instance, a food company would understand that ignoring water-related risks would jeopardise its competiveness—or even its long-term survival.

Investor focus is too short term
Such realities are much less tangible in the short run, and investors are therefore slower to adapt. Baldinger believes that excessive short-termism, combined with career risk, has fostered an environment in which greater importance is placed on quarterly results rather than the long-term objectives of investment funds.

“This mind-set has led to misplaced priorities that are neither in the best interests of investors, pension fund beneficiaries, shareholders nor of society at large,” he says.

What’s to be done?

Baldinger believes that Rio+20 offered some pointers. After all, seven priority themes—energy, sustainable cities, food security and sustainable agriculture, water, oceans, disaster preparedness and job creation—were highlighted as the focus of the summit. Meanwhile, he adds, the private sector has a responsibility to allocate capital towards areas that can address our water, energy, food and infrastructure challenges.

 

“The appropriate consideration of sustainability issues is an essential component in delivering superior risk-adjusted returns”

 

“As holders of some of the largest pools of investment capital, pension funds in particular, are well-positioned to effect change,” he says. “But doing so will require key investment decision-makers to abandon conventional approaches to investing, which have thus far been based on a misguided focus on chasing short-term gains.”

As part of that change, Baldinger believes that investment managers and asset owners should fully integrate sustainability into every investment decision by including the analysis of material non-financial information that could affect a company’s long-term capacity to prosper.

Sustainable companies outperform in the long run
Investors are being held back from such sustainability investing by a variety of misconceptions. Some appear to believe that it could potentially breach their fiduciary duty. “Nothing could be further from the truth,” says Baldinger. “The appropriate consideration of sustainability issues is an essential component in delivering superior risk-adjusted returns, which is firmly within the bounds of investors’ fiduciary duties.”

That’s right, “superior” returns. A recent study from the Harvard Business School*, which used SAM’s sustainability data, concluded that high-sustainability companies significantly outperform their counterparts over the long run, both in terms of stock market and accounting performance.

“Sustainability investing isn’t just about investing to mitigate climate change,” says Baldinger. “It is investing in companies that can sustain their business models and continue to be profitable in a world that is already feeling the unavoidable consequence of climate change.”

Economic uncertainty demands long-term approach
Another reason why some steer clear of sustainability investing is the current uncertain economic environment. Many investors want to avoid risk, and are therefore hesitant to allocate capital towards more sustainable investments.

But Baldinger feels this is a flawed interpretation. “Continued economic uncertainty points to the need for a renewed emphasis on long-term thinking and a shift away from short-sighted behaviour,” he says.

Baldinger says that the crisis has reinforced his conviction that by complementing traditional financial analysis with a systematic assessment of material non-financial factors, the quality of a company’s management can be systematically measured. “This gives additional insights into a company’s true risk profile,” he says.

What’s more, investors may be shooting themselves in the foot by ignoring sustainability risks. “Climate Change Scenarios—Implications for Strategic Asset Allocation”, a report published by Mercer, Grantham LSE and Vivid Economics, estimated that cumulative economic costs of the environmental, health and food security impacts of climate change could reach between USD 2 trillion and USD 4 trillion by 2030.

It is a lucky investor who doesn’t need to worry about the impact of such costs. Or is he just showing as much vision as the politicians at Rio+20?

*Eccles, Robert G; Ioannis Ioannou and George Serafeim, “The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance” Harvard Business School, 2011
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