Green investing grows up

Sustainability is moving to the forefront of the investment agenda globally as corporate and retail investors alike respond to a growing emphasis on green and ethical business practices and fast-changing regulatory developments.

A growing number of investors in Ireland and overseas are looking to Environmental, Social and Governance (ESG) criteria to determine where best to put their money, according to Mark Kennedy, Partner at Mazars in Ireland.

"The historic view that sustainable investing was primarily ethically-driven is now being replaced by a long-term view that it's also commercially and economically sensible," Kennedy said.

"There is clearly a significant ethical driver here for investors, but, in the past, there has sometimes been the view that the returns might be lower.

"As this part of the industry has grown, however, the returns from the stocks and shares that make up ESG portfolios have become as secure and sought-after as more traditional options."

Most investment providers in Ireland and other markets, including well-known pension and savings providers, now offer ESG portfolios, according to Kennedy.

"Even the big institutional players are investing in sustainable portfolios and we've also seen sovereign wealth funds adopt sustainable strategies in recent years," he said.

This is because, for a growing number of investors, sustainable portfolios are increasingly viewed as an attractive long-term investment option.

"Investors, particularly in the retail space, tend to think long term. For most of us, the single biggest investment we make in our lives will be our pension fund," Kennedy said.

"That requires a 'long view' and sustainable portfolios give you that long term opportunity. Investors have confidence that they won't suddenly reduce in value.

"Investing in solar energy is now, for example, a more secure option than investing in a fossil fuel, such as coal."

Just this month, G7 countries committed to bringing a halt to all new government funding for coal-power projects in developing countries by the end of the year and pledged to eliminate fossil fuel subsidies by 2025.

Ministers from all G7 member countries - Britain, Canada, France, Germany, Italy, Japan and the US - signalled their intention to instead support clean energy alternatives, such as wind and solar power.

"When you see governments taking a view such as this on the coal industry, portfolios that favour sustainable alternatives become more attractive to investors because they offer better long-term protection," Kennedy said.

In addition to his role as Partner, Kennedy is also a member of the Mazars international Group Executive Board and involved in the banking and insurance sectors internationally.

"Pretty much every mainstream provider today has a sustainable portfolio service and these portfolios are rated and scored by various means: are they positive from a climate perspective, for example, or in terms of their social impact?" he said

ESG considerations are particularly important to younger investors in the Millennial bracket (aged 25 to 40) and even Gen Zers, the oldest of whom are in their early twenties.

"Sustainability and ethical business are both crucial to people in these age groups. That's really driving the appetite for this type of investment," Kennedy said.

"They have adopted rules as to what they will and won't invest in, so they can be sure their money is going into the kind of stocks and shares they trust."

Underpinning this, the global regulatory regime is increasingly favouring sustainable business practices.

The European Commission's Green Deal incorporates a legally binding target to reduce emissions across EU member states to net zero by 2050.

In the US, President Joe Biden recently pledged to reduce greenhouse gas emissions by at least 50 per cent by 2030.

China, the largest source of carbon dioxide in the world, has also committed to reaching peak carbon emissions by 2030, followed by carbon neutrality by 2060.

"All of the signs point to continued growth in sustainable investing,"

Kennedy said.

"More and more people will shift from historical legacy investments to ESG or part-ESG portfolios. I can't see anything but growth in the sector moving forward."

This article first appeared in The Business Post on the 30^th May 2021.