chinazh
Fresh capital has not run dry for unsustainable firms

Fresh capital has not run dry for unsustainable firms

11-03-2021 | 研究
Despite rising interest in sustainable investing, unsustainable companies have faced no obstacles in raising funds in public markets. To deprive these businesses from fresh capital, sustainable investing needs to become ’business as usual’ in the investment community.
  • David Blitz
    David
    Blitz
    Chief Researcher
  • Jan Anton van Zanten
    Jan Anton
    van Zanten
    SDG Strategist
  • Laurens Swinkels
    Laurens
    Swinkels
    Researcher

Speed read

  • Sustainability has garnered increased attention in recent years
  • Yet unsustainable firms have not been starved of fresh capital
  • Sustainable investing must become the norm going forward

Sustainable investing has gathered rapid momentum in recent years. This impulse is shifting the goalposts for investments, as investors are increasingly looking for solutions that make an impact alongside financial returns. Asset managers and owners can reach these objectives through active ownership and capital allocation. With active ownership, they can pursue their sustainability goals by voting at shareholder meetings and engaging in constructive dialogue with firms to steer their behavior. They can also vote with their feet, through their capital allocation choices.

Sustainable investing is not limited to negative screening, as it also entails taking larger positions in sustainability leaders

Excluding companies, for example ‘sin stocks’, from investable universes is a popular way to make an impact through capital allocation. However, sustainable investing is not limited to negative screening, as it also entails taking larger positions in sustainability leaders. This can be done with the integration of environmental, social and governance (ESG) indicators in investment processes, targeting carbon footprint reductions in portfolios, or aligning investments with the United Nations’ Sustainable Development Goals (SDGs).

There can be many reasons to divest from unsustainable firms and shift capital towards more sustainable ones. Some investors are content with simply disassociating themselves from certain businesses, such as the tobacco industry, regardless of whether this will have any effect on the actual production and consumption of tobacco products. Others see it as a signaling tool, even though they acknowledge that this approach likely has no direct impact on the related companies. The third and most ambitious reason is to allocate capital in a way that supports sustainable companies and hurts unsustainable ones. This approach can incentivize the latter to improve their corporate behavior.

Measuring the impact on a firm’s cost of capital

Our analysis examines how sustainable investing has affected capital flows and the financing needs of companies. In principle, divestment would negatively affect the targeted firm, but this mechanism is actually not so clear-cut. Divesting results in a transfer of ownership from one investor to another, which has no direct impact on the firm. However, divestment may hurt companies indirectly by increasing their cost of capital. With this in mind, we argue that the ultimate impact of sustainable investing on listed companies is best evaluated by examining the primary market, i.e. new issues of bonds and stocks.

In our study, we considered all stocks in the MSCI All Countries World Index over the 2010-2019 period. We classified a company as an equity issuer if its number of shares outstanding increased by at least 10% over the year. Similarly, we categorized a company as a debt issuer if the book value of its debt increased by at least 10% over the year. To distinguish between sustainable and unsustainable businesses, we used a broad range of metrics, namely ESG, carbon footprint and SDG dimensions.

Our analysis showed no evidence that fresh capital flowed more towards sustainable firms than towards unsustainable ones

Our analysis showed no evidence that fresh capital flowed more towards sustainable firms than towards unsustainable ones. More specifically, it appears unsustainable companies faced no obstacles in raising funds in public markets. Indeed, the sustainability profile of equity issuers was generally similar to the broad market, while debt issuers even tended to have a below-average sustainability profile. Moreover, our results were stable over time. Capital did not flow more towards sustainable firms in recent years than before.

Therefore, our results suggest that sustainable investing has not been able to starve unsustainable companies from fresh capital over our sample period. We acknowledge that if sustainable investing continues to grow, it may become increasingly hard for unsustainable firms to obtain fresh funding in capital markets. But how much growth would be needed for that, and whether such a scale is realistically attainable, remain open questions.

To deprive unsustainable companies from fresh capital, sustainable investing needs to become ’business as usual’ in the investment community.

免责声明:

本文由荷宝海外投资基金管理(上海)有限公司(“荷宝上海”)编制, 本文内容仅供参考, 并不构成荷宝上海对任何人的购买或出售任何产品的建议、专业意见、要约、招揽或邀请。本文不应被视为对购买或出售任何投资产品的推荐或采用任何投资策略的建议。本文中的任何内容不得被视为有关法律、税务或投资方面的咨询, 也不表示任何投资或策略适合您的个人情况, 或以其他方式构成对您个人的推荐。 本文中所包含的信息和/或分析系根据荷宝上海所认为的可信渠道而获得的信息准备而成。荷宝上海不就其准确性、正确性、实用性或完整性作出任何陈述, 也不对因使用本文中的信息和/或分析而造成的损失承担任何责任。荷宝上海或其他任何关联机构及其董事、高级管理人员、员工均不对任何人因其依据本文所含信息而造成的任何直接或间接的损失或损害或任何其他后果承担责任或义务。 本文包含一些有关于未来业务、目标、管理纪律或其他方面的前瞻性陈述与预测, 这些陈述含有假设、风险和不确定性, 且是建立在截止到本文编写之日已有的信息之上。基于此, 我们不能保证这些前瞻性情况都会发生, 实际情况可能会与本文中的陈述具有一定的差别。我们不能保证本文中的统计信息在任何特定条件下都是准确、适当和完整的, 亦不能保证这些统计信息以及据以得出这些信息的假设能够反映荷宝上海可能遇到的市场条件或未来表现。本文中的信息是基于当前的市场情况, 这很有可能因随后的市场事件或其他原因而发生变化, 本文内容可能因此未反映最新情况,荷宝上海不负责更新本文, 或对本文中不准确或遗漏之信息进行纠正。
Logo

Disclaimer

The information contained in the website is solely intended for professional investors. Some funds shown on this website fall outside the scope of the Dutch Act on the Financial Supervision (Wet op het financieel toezicht) and therefore do not (need to) have a license from the Authority for the Financial Markets (AFM).

The funds shown on this website may not be available in your country. Please select your country website (top right corner) to view the products that are available in your country.

Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, annual and semi-annual reports, which can be all be obtained free of charge at this website and at the Robeco offices in each country where Robeco has a presence.

Please confirm that you are a professional investor and/or institutional investor and that you have read, understood and accept the terms of use for this website.

I Disagree