Page 26 - Energize March 2021

VIEWS AND OPINION

Ethical investing has finally arrived

by Fereidoon Sioshansi, Menlo Energy

There is no penalty for being sustainable; rather, the opposite may be true.

or some time now, EEnergy Informer has been speculating about the dawn of ethical
investing – that is, tangible preference on the part of individual investors and/or
Fprofessional fund managers to invest in companies which care about sustainability,
consider the impact of their operations on the environment and – most importantly – disclose
their potential exposure to climate change.
But of course, what matters most is not what the media think but what investors and fund
managers actually do. As everyone knows, in our capitalistic system, money ultimately talks.
In the past several years, when we would ask professional investment managers and
financial analysts, the polite response was usually something along the lines of: “Of course,
ethical investing is on the rise, but our investors, by and large, are primarily (or solely) focused
on the returns and not ready to sacrifice yield to save the environment, at least not yet.”
One analyst pointed out that “The only Amazon that investors are concerned about is the
one that offers next-day delivery.”

But recent developments appear to have changed many minds:
• Devastating wildfires in California, bushfires in Australia and massive forest fires in the
Amazon – among other calamities – has made climate change much more pronounced
in people’s lives and minds. It is no longer an abstract concept for the future or for tree Fereidoon Sioshansi
huggers. It is real and it is increasingly here.
• The pressure on large and small corporations to take climate change seriously is mounting
– something that was evident at the World Economic Forum in Davos in late January. remain a niche market and I would be
• There is mounting evidence that ethical investing (ESG) need not be detrimental to bashing my head against a brick wall.”
the bottom line. In fact, sustainable investing may turn out to be above average and “With Trump, Greta and the recent
potentially profitable. fires, I think the turning point, when public
• Ironically, the persistent denials of climate skeptics – notably the likes of US past- pressure has fed back into policy making
president Donald Trump, Australia’s prime minister, Scott Morrison, and Brazil’s president and investment strategy at ‘Big Money’,
Jair Bolsonaro – among others, appear to have galvanised many across the globe who has finally arrived”, Moore says.
have come to the conclusion that their political leaders are not the least interested in In explaining his own change of mind,
addressing climate change. Moore said: “With President Trump’s
negligent environmental stance ironically
They must vote with their investment portfolios shining a spotlight on the importance
BlackRock’s recent decision to consider climate change risk exposure, covered in the Feb of sustainable policy, Greta Thunberg’s
issue, was yet another example of how ethical investing – or whatever you prefer to call it – is campaign and the terrible fires of last year
likely to take shape especially among the next generation of investors, the so-called Alpha – public acceptance of what the scientists
generation, the cohorts of Greta Thunberg and her throngs of supporters. Given a choice, they have been saying for decades has finally
are unlikely to knowingly invest in fossil fuel companies, period. And as time goes on, they will reached critical mass, which ‘big money’
have plenty of choices. can no longer afford to ignore.
Until now ‘ethical investing’ has
A Swedish proverb says, “Those who wish to sing always find a song.” been a niche preserve for those who
understandably put the planet before the
But is there any evidence that ethical investing is in fact in? In search of an answer, this editor buck, but it was not particularly helpful for
sought the views of James Moore, a partner at Redburn, Europe’s leading independent equity finding investment outperformance. Now
research business. that our biggest customers – i.e., the major
Redburn’s research is used by many of the world’s biggest investment managers in investment fund managers like BlackRock
deciding where to invest and how to manage their massive portfolios. Moore confided that – can see clearer outperformance from
“I first got excited about ESG investing in 2005 when we wrote a big report on the subject at ethical investing and, perhaps more
my former firm, Goldman Sachs. At the time we were arguably one of the early commentators importantly, the risk that their customers in
to push the idea of ESG and sustainability in research at that point. But then for years no one turn may walk away if they don’t change,
really cared, and I realised that unless big money – BlackRock, etc. – made the move it would we have seen a big move to ethical

energize | March 2021 | 24