Reflecting on the news last week
You don’t need to go far to hear horror stories related to climate change despair and destruction. Last week we saw the UN statement on the ‘triple emergency‘ the world faces, plus the impacts of climate change being felt in Texas and California. Despite these warnings, as George Marshall explains in his book “Don’t Even Think About It” the human brain is hard-wired to ignore these doom-laden warnings as too scary. Far from gingering-up action, your average human makes-like-an-ostrich on this type of news and hopes it will all go away.
On the other hand, our message is positive. It is a message of hope. It’s a message of purpose. In short, we are inspiring action.
Achievement of the SDGs is now within the bounds of possibility. The UN estimates that we need to be spending $5-7tn on the SDGs annually. The latest data suggests that we are already up to $3t. Well short – but it only leaves a gap of $2-4tn.
Central banks have injected $6.6tn liquidity into financial markets since March in response to the pandemic. So the funds could be found if the will was there.
Which is where we come in. Recent data from Morningstar showed global assets in sustainable funds hitting almost £1tn. Inflows to ESG funds more or less quadrupled in 2020. So financial markets are also pumping investment into the companies that are forging solutions and taking money out of companies who are damaging. The more money that goes into investment funds the quicker the essential pace of change will be. We have a long way to go though! Positive impact probably represents only 1% of assets under management in the world.
Looking at the pace of change and the gap that needs to be filled it is clear that we are still at the very start of a global mega-trend. On the adoption curve we have hardly even got started:
ESG investing is making a difference and returns are trending above-average.
Impact investment is not ESG. With impact investment the difference is bigger and I believe that returns will be that much better still in the short, medium and long-term.
Maybe not understanding that ESG (and impact) is not just a flash-in-the-pan there are negative voices who are indulging in ‘green-bubble’ speculation. Whilst some stocks look expensive, our fund managers are taking action where necessary. For clients who may have concerns: take for example Tesla which has gone up 10x in the past year or so. Last week Baillie Gifford trimmed exposure to the stock by 50% locking in huge gains for investors. It’s also worth bearing in mind that Impact Investment is an excellent SWOT analysis overlay for investors and is baked-in to the impact process.
With only something like one Cent in the dollar invested in Impact in the wider investment universe, our clients who are the innovators and early adopters, and hence ahead of the curve, will surely be rewarded. Not only financially but spiritually, too. Our whole community is confronting issues positively and on purpose so it’s worth remembering the helpful contribution we are all making and that our positive message is a call to action.
Former US President Barack Obama:
We are the first generation to feel the effect of climate change and the last generation who can do something about it.