Sustainable investing has been on the rise in recent years, as investors increasingly recognise the need to align their investments with their values and support the transition to a more sustainable future. This trend has been driven by a variety of factors, from regulatory pressures to changing attitudes among investors of all kinds.
According to Victor van Hoorn, Executive Director of Eurosif, the association that promotes sustainable investment across Europe, the rapid adoption of environmental, social and governance (ESG) investments reflects the way a series of drivers have come together all at once. These drivers include policy agenda, regulation related to sustainable finance, reporting and disclosure, and the debate about whether ESG investment funds outperform.
This trend is not limited to retail investors, with research from PwC finding that more than three-quarters of larger investors, including pension funds and insurance companies, intend to stop buying conventional funds in favour of ESG alternatives by 2022. Similarly, in research conducted by London Stock Exchange Group subsidiary FTSE Russell, 84 percent of asset owners globally said they were implementing or evaluating sustainable investment strategies in 2021.
However, with this rise in sustainable investing comes the risk of “greenwashing” – the promotion of products by making spurious claims about their ESG credentials. To combat this, the Financial Conduct Authority launched the Green Technical Advisory Group (GTAG) to develop a “green taxonomy” – effectively a framework that sets out what funds must do to qualify as genuinely sustainable, and how they must report on their work to investors.
Other initiatives include Refinitiv Lipper Fund ESG scores, which measure performance, commitment and effectiveness in 10 areas across environmental, social and governance pillars. These scores cover 19,000 portfolios representing $15.7tn worth of assets and provide an objective and impartial assessment of the importance of each ESG theme to different industries.
From a systemic perspective, the ESG movement will be judged on whether it drives a move to more responsible and sustainable behaviours on the part of the companies and organisations in which it invests, but also on whether it helps raise the funds to finance the transition towards a greener economy. The London Stock Exchange’s Green Economy Mark, awarded to listed businesses that generate at least 50 percent of their total revenues from green products and services, represents a step in the right direction.
Takeaway
The shift to a sustainable, net-zero economy is an essential and urgent task that requires significant investments from both public and private sources. While the public sector can provide a substantial portion of the funding, it is evident that much more is needed to reach the UK’s target of net-zero emissions by 2050. As per the independent Office for Budget Responsibility, the price tag for this ambitious goal stands at a staggering £1.4tn, with only £344bn expected to come from public finances.
Fortunately, innovative and proactive organizations such as the London Stock Exchange Group (LSEG) are stepping up to the challenge of closing the funding gap. Through their support for green finance fundraising initiatives, the LSEG is empowering businesses to transition to a more sustainable future. The LSEG’s efforts to promote and facilitate fundraising through equity and bond markets are indeed commendable, as they enable companies to access the capital they need to invest in green technologies and processes.
By embracing sustainability as a core business strategy and securing the necessary funding to transition to a greener future, companies can position themselves to thrive in a world where environmental concerns are increasingly prominent. The LSEG’s commitment to advancing green finance initiatives is a critical step towards achieving this goal, and it serves as a prime example of the essential role that the private sector can play in driving the transition towards a sustainable, net-zero economy.