ESG investing is changing quickly and carbon targets will change the shape of portfolios everywhere.
Speaker : Altaf Kassam
“They grow up so fast” – Of all the parenting cliches (and I use loads), this one seems the most apt right now, as both my son and daughter shoot up like weeds (more cliche). And of course, it’s not just their height, everything’s changing – Taking them far away from the babies I could once carry in each arm. It’s all good though, and as much as you’re nostalgic as a parent, you know inside that change is both inevitable and for the good…
An accelerating transformation is also something that we’re seeing in ESG investing right now – This year, ESG AUM has grown to over a third of the world’s professionally managed assets, and that big number is increasing exponentially. Obvs, as my teens would say.
Less obvious though, is that the motivation for ESG investing has morphed – Investors now want to drive positive climate change through their ESG investments, not just stay the right side of regulators or improve risk-adjusted return.
So, I think what we’re going to see over the next 3 years is a surge in decarbonisation target-setting globally and the adoption of more climate-specific benchmarks across all asset classes.
Implementation could be complex and uncertain to start, so investors will need to make bold decisions not only about benchmarks, and also tracking error tolerance; active strategies will come more to the fore but this won’t mean that asset stewardship and engagement go out of the window - In fact they’ll become more important than ever: To paraphrase one of our clients - They could sell their largest carbon emitters and drastically cut their ownership of emissions, but still be exposed to the risks of climate change, and that’s the one risk we all need to help the planet avoid.
Five years from now both my kids will have majority, and I’ll be even less able to tell them what to do, although I’ll still be able to embarrass them with their baby pictures. Given current growth rates, ESG investing will also be the majority of investing by that time, but I won’t be nostalgic for its bygone days - The world should be in a better place.
But, as my kids would say: Whatevs. Right now it’s time for us all to roll up our sleeves and get to work, this climate isn’t going to transition itself…
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Exp. Date: 11/30/2022