Trends: Financial Sector Shifts to the Climate Crisis

12-02-2020

 

Fact: investment is driven by financial return. Nevertheless, an increasing number of investors are looking for options to generate positive social and environmental impact, as well as financial return. This research comes as part of the first instalment of an amfori series on trends influencing the sustainability industry. On this ocassion, we share insights on the financial sector. 

A sample of 2000 investments showed that where sustainability factors were included in investment decisions, 90% of investments resulted in even better financial performance. Similarly, research from Oxford University underlined that companies with robust sustainability practices demonstrate better operational performance, which ultimately translates into positive cashflow.

Sustainable investments fall under the umbrella of SRI (Socially Responsible Investing), ESG (Environmental, Social and Governance) and Impact investing. These are the most common investing practices used for driving sustainability in finance. A 2018 survey showed that in the U.S. more than $1 out of every $4 invested are allocated under SRI, EGS or Impact investing. This amounts to over $12 trillion in assets. The desire to invest responsibly is especially important for Millennials.

Further research indicate clear trends in the uptake of  ESG, impact investing and SRIa new league of investors are looking for the creation of positive impact across society and the planet, whereas maintaining or even increasing their financial returns. By doing so, they are shifting the tide in mainstream financial  mindsets: from short-term return-oriented to long-term positive impact creation, very much needed in current times of global risks and climate crisis

A call from the top

Banks worldwide are creating funds and investment lines to empower responsible investment. Also, pension funds and NGOs are urging investors to consider environmental and social risks when managing their investments portfolio.

This year, we all lived through a pivotal moment. January 14th: Larry Fink, major asset manager and founder of BlackRock (largest money-management firm in the world) sent his annual letter to CEOs, with a strong focus on reshaping the finance sector in the face of our climate crisis.  In 2020, the message is clear: “climate risk is finance risk”. We have reached a state that “Every government, company, and shareholder must confront climate change”.

The Decade of Action

We welcome the ambition and the reaction of the financial sector to reshape itself. 2020 opens the decade of action to reach the 2030 UN Development Goals and the real hope is that the actions of investors trickle down into real impact on the ground, towards environmental and social value creation. We have high hopes for the European Green deal, supporting investments in green technologies, sustainable solutions and new businesses. Similar instruments such as the World Bank’s Green Bonds are offering governments and business momentum for action. 

amfori’s contribution

amfori is committed to aligning its work to the SDGs, and support its members in measuring their contribution towards achieving the SDGs. In 2019, amfori released a technical mapping paper and practical guide for members to start integrating the SDGs into their companies’ strategy. In 2020-2021, amfori envisions to provide the tools and datasets to start measuring this actual contribution.

Further reading:

Trends: Climate Activism and Green Politics on the Rise