The coronavirus pandemic has underscored the importance of sustainability and accelerated the flow of capital toward sustainable investments. But how sustainably are investors really investing?
Following a survey commissioned by UBS Asset Management and conducted by the Economist Intelligence Unit, ESG criteria are right at the top of global institutional investors’ agendas. That is hardly surprising: the majority of respondents in the recent survey «Resetting the agenda – How ESG is shaping our future» () confirmed that investments geared to ESG criteria performed better in the three years before 2020 than the corresponding conventional investments. 450 investors from North America, Europe and the Asian-Pacific rim participated in the survey.
ESG criteria now a “must-have”
Integrating environmental, social and governance (ESG) criteria is increasingly regarded as a promising opportunity for a more sustainable world rather than a compromise. This is confirmed by three quarters of institutional investors worldwide. In the words of Suni Harford, President of UBS Asset Management: “Our clients take ESG criteria seriously in their decision-making; sustainable investments are no longer nice-to-have, they are must-have.” The findings of the recent survey show that ESG criteria are both performance markers and drivers of growth, and that institutional investors rely on such criteria to improve their investment decisions and assess their own performance.
Climate impact test establishes actual sustainability
The financial industry must align its investments and financing with the goal of containing global warming to 1.5 degrees Celsius and avoiding serious disruptions to ecosystems. To measure the climate compatibility of the Swiss financial industry, the Federal Office for the Environment, FOEN, together with the State Secretariat for International Finance (SIF) tested 179 financial institutions on a voluntary basis last year (https://www.newsd.admin.ch/newsd/message/attachments/63672.pdf).
The financial industry continues to invest too strongly in oil production and coal mining The results show some promising progress. At least two thirds of respondents reported employing a climate strategy. Half of the respondents stated that they had adopted climate measures and scored better than their competitors on average in terms of climate goal alignment. Moreover, certain financial institutions are increasing their stock holdings in renewable energy and electromobility companies.
Overall, however, the Swiss financial market continues to invest too strongly in oil production and coal mining. And 80% of respondents still hold stocks of coal mining companies in their portfolio. Furthermore, four times as much is invested today in companies that generate electricity from fossil fuels such as coal and gas than in companies that produce renewable energy. In this manner, the Swiss financial sector contributes to the continued expansion of international coal mining and oil production. This runs counter to the climate goal. Investing in fossil fuels may also entail financial risks for investors should these sources of energy become less attractive owing to new climate policy measures.
The financial sector must make further efforts
The Federal Council intends for Switzerland to become a leading location for sustainable financial services. For Switzerland to contribute to climate alignment, more, and more practical, action is needed from the financial sector. In the process, improved transparency and regular progress assessment must not be forgotten.
