Outlook 2019: investing for a sustainable future

17 Dec 2018

As the rise of political instability and populism threatens the pace of progress towards a sustainable world, asset managers and asset owners must tighten their grip on the baton and embrace their crucial role – as future makers.

An eventful ride

We have seen unparalleled progress on global efforts to address the world’s biggest sustainability challenges, showcased by the launch of the Sustainable Development Goals (SDGs) and the Paris Climate Agreement in 2015. Both enjoy wide-ranging support from the world’s largest investors, companies, civil society and numerous levels of government, including regions, states and cities.

However, this progress has been tempered by the rise of political instability and populism. This is a phenomenon that may be with us for some time as long-term trends including globalisation, technological change and inequality of opportunity generate social and cultural insecurity.

As a consequence, some countries have pulled away from climate (and other) commitments. While this does not mean progress will come to a stop, it certainly is not helpful.

 

Growing up

So, what can we do? Enlightened asset managers and asset owners have the potential to embrace their role as future makers by using their assets and influence to push for a sustainable world – one that facilitates their ability to generate long-term returns for their clients, with the added benefit that we end up with a world into which people actually want to retire. BNP Paribas Asset Management is committed to being just this kind of investor – a future maker.

Growing up is a process of refining and further embedding the concepts and tools that leading investment professionals have been using for years. BNP Paribas Asset Management has been addressing sustainable investment since 2002 and in 2012, committed to integrating environmental, social and governance (ESG) criteria across our open-ended mutual funds.

Part of BNP Paribas Asset Management’s ‘growing-up’ process has been to provide more governance, structure and support to the sustainable investment practices. We are strengthening our acclaimed sustainable investment team, reflecting our commitment and ambition.

 

Going further: the clock is ticking

In addition to growing up, the field – out of necessity – must go further. In a Special Report on Global Warming of 1.5 °C, the Intergovernmental Panel on Climate Change concluded that limiting the rise in average global temperatures to 1.5°C is still possible, but time is short. We have 12 years left at the current run rate for annual CO2 emissions for a 66% chance of achieving a 1.5°C outcome.

The UN has been holding annual, international climate change talks for more than 20 years, yet success has been limited. However, investors have now become an intentional part of the solution. BNP Paribas Asset Management has launched a climate change strategy and more recently, we and 400 other investors representing USD 32 trillion of assets launched The Investor Agenda, which commits us to accelerating and scaling up actions that are critical to achieving the Paris Accord target in four areas: investment, corporate engagement, investor disclosure and policy advocacy.

These examples focus on climate, which clearly requires drastic, short-term attention. However, we are also turning our focus more clearly towards critical issues such as pollution, land-use and inclusivity, which are affecting our investments, our economy and our clients’ quality of life.

 

Rising to the challenge

A sustainable world requires sustainable financing and investment. To get there, the investment community must rise to the challenge. We need to look more closely at what we do – and do not – invest in. And we need to allocate sufficient resources to engaging with the companies in our portfolios and with the policymakers who create the rules of engagement.

We cannot be passive ‘takers’ of the future world – we must build the world we want, and need, for our investments and our clients, and for the generations that follow.

So, we are scaling up our work to match the level of today’s challenges. We believe it is important to have a strong voice in the markets in which we invest. We are involved in crucial initiatives such as the European Institutional Investors Group on Climate Change and the PRI, and are boosting our presence, for example, in the Asian and US Investor Networks on Climate Risk, the EU Technical Expert Group and the FSB Task Force on Climate Related Financial Disclosure (TCFD).

 

For our clients, and beyond

Sustainable investing allows us to better manage the risks – and pursue the opportunities – associated with the energy transition, environmental sustainability and inclusive growth.

We are using our voice and our leverage to push for the appropriate management of sustainability issues such as climate change over the long term.

Investors should expect enhanced ESG portfolio-level reporting and portfolio-wide annual engagement reports including our ambitious policy advocacy agenda.

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