Time to embrace a green recovery

As 2020 stag­gers uncer­tain­ly towards a close, for­ti­fied by hopes of green recov­ery, it is easy to for­get the year actu­al­ly began pret­ty green in invest­ment terms.

Jan­u­ary saw green action by both of the world’s biggest fund man­agers. Black­Rock took its mon­ey out of coal and the Church of Eng­land backed its cli­mate beliefs with a new tran­si­tion index on the Lon­don Stock Exchange. Then along came coro­n­avirus.

COVID-19 has affect­ed dif­fer­ent mar­kets in dif­fer­ent ways: it has stalled or stopped some trends for­ev­er; oth­ers it has accel­er­at­ed and inten­si­fied. Sus­tain­able invest­ment is one of the lucky ones, says Tom McGilly­cud­dy, co-founder of tickr.

“The returns from sus­tain­able and impact invest­ments have con­sis­tent­ly out­per­formed the stock mar­ket since the begin­ning of the pan­dem­ic. The indus­try no longer has to sell a prin­ci­ple, or morals-based argu­ment, it can now point to returns as well,” he says.

As an impact invest­ment app, tickr taps into a smart­phone gen­er­a­tion for whom envi­ron­men­tal, social and gov­er­nance (ESG) cri­te­ria are becom­ing not just relat­able, but attrac­tive.

From grassroots activism to greenwash

Pro­fes­sion­al­ly, too, there is a grow­ing accep­tance that invest­ing sus­tain­ably can make mon­ey, that it does not cost you dear­ly to do good, says Edward Lees, co-head of the Envi­ron­men­tal Strate­gies Group at BNP Paribas Asset Man­age­ment.

“ESG-themed inflows to exchange-trad­ed funds have been mas­sive and quite con­sis­tent this year, help­ing to lift var­i­ous relat­ed sec­tors. This is in part a reflec­tion of a greater pub­lic aware­ness around cli­mate and social issues,” he says.

If any­thing, the green recov­ery idea has sim­ply pro­vid­ed a big boost to an estab­lished trend, adds Tim Cock­er­ill, invest­ment direc­tor at Rowan Dart­ing­ton, part of the St. James’s Place Group. “Finan­cial returns and envi­ron­men­tal prin­ci­ples go hand in hand. Con­sumer demand and neces­si­ty dri­ve change; this cre­ates the invest­ment oppor­tu­ni­ty and prof­it motive,” he says. “The more busi­ness­es become sus­tain­able, the more that’ll dri­ve change and con­sumer behav­iour; one thing feeds the oth­er.”

In fact, research by Tri­o­dos Bank has found that the pan­dem­ic is dri­ving growth in sus­tain­able invest­ments, moti­vat­ing more than one in five UK adults (22 per cent) to explore eth­i­cal funds, with over a third (39 per cent) con­sid­er­ing them key to address­ing cli­mate issues and avoid­ing future pan­demics.

Much as sus­tain­abil­i­ty and ESG-screened indices have sky­rock­et­ed in pop­u­lar­i­ty, how­ev­er, this red-hot promise of green growth comes with a few caveats, argues Jac­co Min­naar, chair of the man­age­ment board at the sus­tain­able bank’s invest­ment arm, Tri­o­dos Invest­ment Man­age­ment.

“Too many prod­ucts are aligned to mar­ket­ing hype rather than an authen­tic impact invest­ment strat­e­gy,” he says. “The prob­lem is that the term ‘sus­tain­able’ is not pro­tect­ed and there are no glob­al­ly or nation­al­ly recog­nised def­i­n­i­tions.”

Blueprint for a green economy

So where should the smart mon­ey go in a green recov­ery? Pub­lished in July, the World Eco­nom­ic Forum’s Future of Nature and Busi­ness report iden­ti­fied 15 tran­si­tions that form a blue­print for a green econ­o­my, which could gen­er­ate $10.1 tril­lion in annu­al rev­enue and cre­ate 365 mil­lion jobs by 2030.

In the case of the ener­gy sec­tor, evi­dence of the eco­nom­ic via­bil­i­ty of renew­able pow­er gen­er­a­tion is every­where, with the Inter­na­tion­al Ener­gy Agency con­firm­ing solar pow­er to be the cheap­est source of elec­tric­i­ty in his­to­ry.

Fur­ther­more, the sus­tain­abil­i­ty wins are mul­ti­ple from elec­tric vehi­cles cut­ting car­bon and city-cen­tre pol­lu­tion, to solar farms cool­ing dat­a­cen­tres that pow­er the dig­i­tal rev­o­lu­tion.

As well as the envi­ron­men­tal ben­e­fits accru­ing, there is a sig­nif­i­cant wealth-cre­ation oppor­tu­ni­ty with the ener­gy tran­si­tion, says Dun­can Gri­er­son, founder and chief exec­u­tive of Clim8 Invest.

“Tril­lions of pounds and dol­lars need to be invest­ed into clean ener­gy to meet the goals of the Paris Agree­ment and returns can be very good, espe­cial­ly in a zero inter­est-rate envi­ron­ment where investors are des­per­ate for returns,” he says.

The bank­ing sec­tor is also in a strong posi­tion to help dri­ve a longer-term strate­gic play, says Scott Bar­ton, head of cor­po­rate and insti­tu­tion­al cov­er­age at Lloyds Bank. “Banks have an impor­tant role in reduc­ing the car­bon foot­print by incen­tivis­ing busi­ness­es to move towards more sus­tain­able fund­ing strate­gies,” he says. “This invest­ment will help cre­ate high-val­ue jobs and build a more resilient econ­o­my. The pan­dem­ic hasn’t damp­ened our focus on sus­tain­abil­i­ty, it has strength­ened it.”

Steer­ing investors to “build back bet­ter”, in a lit­er­al sense, the launch by Lloyds in June of a Green Build­ings Tool was designed to help com­mer­cial cus­tomers iden­ti­fy poten­tial ener­gy sav­ings and rec­om­mend per­for­mance improve­ments. Clients have already used it to assess an area of real estate, equiv­a­lent to about 520 foot­ball pitch­es.

On the domes­tic front, invest­ing in a green recov­ery might also include such ini­tia­tives as the UK government’s new Green Homes Grant scheme, announced as part of a £3‑billion green build­ings pack­age, deliv­er­ing up to 140,000 jobs.

The grants fund vouch­ers to help land­lords and low-income home­own­ers retro­fit insu­la­tion to fix leaky prop­er­ties that both burn ener­gy unaf­ford­ably and gen­er­ate emis­sions unsus­tain­ably.

Green New Deal in the White House

Ulti­mate­ly, though, when it comes to invest­ment, the clas­sic argu­ment applies: if you think the busi­ness case for sus­tain­abil­i­ty is hard, try mak­ing the alter­na­tive.

Espe­cial­ly now with the Green New Deal back on Pres­i­dent-elect Joe Biden’s White House agen­da, who would back dirty mon­ey against clean pow­er? Dr James Mac­Gre­gor, envi­ron­men­tal econ­o­mist at Ram­boll, says the green recov­ery is a defin­ing moment for sus­tain­able invest­ment. “It has long been said that meet­ing the sus­tain­abil­i­ty imper­a­tive would require restruc­tur­ing entire economies and inject­ing tril­lions of dol­lars in pub­lic fund­ing. Now we are inject­ing tril­lions, we have a once-in-a-life­time oppor­tu­ni­ty to fund the tran­si­tion to a sus­tain­able future while relaunch­ing the econ­o­my,” he con­cludes.

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