There are many terms used in the sustainable finance world.
But, whether you’re referring to responsible investment (RI), environmental, social and governance (ESG) integration or ethical investing, one thing’s clear: “everyone is talking about it” and its growth is “very present and real,” said David Scanlan, managing editor for Bloomberg News, during his opening remarks at Bloomberg’s Canadian Sustainable Investment Forum in Toronto on Wednesday.
The forum’s lineup included sessions on ESG in portfolios, impact investing and green bonds, with Scanlan adding that sustainable finance is “the new norm.”
These days, “the market is less tolerant of ESG incidents,” which can have “a big impact” on market issuers and stock prices, said Chris Hackel, index product manager at New York-based Bloomberg L.P. ESG integration was in the development phase until 2015, he said, and we’re now approaching the final phase, during which regulatory pressure from around the globe will lead to more consistent ESG data and reporting.
Looking at the European Commission’s action plan for financing sustainable growth, for example, illustrates the potential impact of legislative changes. That plan includes four proposals, which were adopted in May 2018, that could lead to standardized labels for green products and indexes, more sustainable benchmarks and a push to offer sustainable investment advice.
Hackel said these proposals are likely to spur RI growth.
Two areas of sustainable finance that are niche but expanding are impact investing and green bonds; the former is defined as intentional investing in green initiatives, often through private vehicles and firms dedicated to impact products, while the latter is a maturing market — sales of green bonds globally have already beaten last year’s record of $135 billion, according to Bloomberg data.
While there are risks in both spaces, it’s important that investors of all types have options, said Kelly Gauthier, managing director of impact advisory at Toronto-based Rally Assets. During a panel on the future of impact investing, she said transparency and proper disclosure are key.
Nalini Feuilloley, part of the same panel and director of BMO Global Asset Management’s responsible investment team, spoke about the proliferation of products. There’s a fear of greenwashing in the RI space, she said, but as long as investment products meet sustainable requirements and investors are clear on what they’re buying, even so-called “light green” funds can have a place.
When asked which investments they were excited about this year, both Gauthier and Feuilloley had favourites. Gauthier pointed to Vancouver-based Deetken Impact’s investment shelf, which includes impact bonds and private equity focused on women’s empowerment and the United Nations’ sustainability goals.
Feuilloley discussed Xylem Inc., a U.S.-based public company that operates in more than 150 countries and provides water technology. Known for helping rescue the Thailand soccer team that got stuck in a flooded cave in summer 2018, the company is fast-growing, had revenue of more than $5 billion in 2018, and estimates the size of its industry at approximately $550 billion.