Not so long ago, ESG investing was considered a fringe area of investing. Now the pandemic is forcing us to re-examine how we allocate our financial resources. To bring out another cliché during these ‘unprecedented times’, it feels like sustainability really is proving to be the ‘new normal’. Because now we have a sense of urgency.
And we also have evidence. Smoggy cities have blue skies again. The murky canals in Venice are clear again. We’re even doing homework again. The pandemic has provided us with tangible confirmation of the positive impact that reducing carbon emissions can have on the world.
Being responsible and being a return-seeking capitalist don’t need to be mutually exclusive. It is possible to be green and make some green. You may have thought that ESG issues would take a back seat during a financial crisis, but now we’re seeing that investors have doubled down and are taking it more seriously than ever before. We’re not ready to say it’s pandemic-proof yet, but…
The numbers don’t lie:
Green is mature: EUR 668 billion of assets under management for ESG funds in Europe1
Green is growing: EUR 30 billion of inflows in Q1 (versus outflow of EUR 148 billion for other European funds)2
Green has a stimulus to keep growing: USD 6.9 trillion of infrastructure investments needed each year to meet climate goals3
Green is performing: ESG funds have had superior performance versus non-ESG funds over the one, three, five and ten-year horizons4
That’s why we’re proud to announce that Evli’s distinguished fixed-income team is launching a new strategy which will focus on the green bond segment. We’re taking the same proven strategy that we have used to establish a successful track record for our other funds - winning numerous awards and honours along the way - and adapting it to invest in green and sustainable corporate bonds.
We take care of the analysing, monitoring and engagement – so you don’t have to
Our clients may have a strong urge to put their money behind green initiatives but lack the time and resources to properly assess the options. Especially if they don’t have anybody in-house who specialises in ESG. With our new strategy to focus on green bonds, you can be sure that we have you covered. We take care of the analysing, monitoring, engaging with the companies, excluding those who fall behind, and reporting to investors.
The green corporate bond segment is a perfect fit for us. Evli is a pioneer going back to the early days of the European corporate bond market, and we’ve taken ESG issues into consideration in our portfolio management activities for over a decade. Not only do we have one of the most experienced and esteemed bond teams in Europe, but we also have an in-house ESG team. And when it comes to our new green bond strategy, this segment has a dedicated Responsible Investing Analyst, as well.
We’re not passively green investing either. We make sure the companies hear our voice, and your voice too. Not only do we meet and directly communicate with companies ourselves, but we are also actively involved in several joint engagements, such as Climate Action 100+, CDP Investors Letters, the Investor Statement to Governments on Climate Change, and the PRI-led engagement on the oil and gas sector.
Peace of mind: with our help, your investments can reflect your values
Even if you’re not specifically aiming for green investments, at the very least you might be wondering, “How do I know my money isn’t doing any harm?” Our funds have strict exclusion criteria to avoid companies that cause such harm. For the new green bond approach, we make sure that the investments adhere to green bond principles, that the company does what it says it will, and that it does so with transparency.
Most traditional corporate bonds are issued for ‘general corporate purposes’, but this is a catch-all term and you, the investor, can have little input or clue as to what the company will really do with the money that you’re lending them.
Green bonds are different, or at least they should be: the ones issued properly have a clearly identifiable, earmarked use of proceeds. But did you know that some green bonds are not very green at all? Sometimes a company will engage in ‘greenwashing’, by issuing green bonds that are green in name only. They can have vague descriptions of the use of proceeds, without any real definitive plans or intention to use the funds in a green way.
Evli’s fixed-income team, with the new green strategy’s dedicated Responsible Investing Analyst, can identify the ones that are doing it properly. Many so-called green or ESG funds only have a small amount of green bonds and many of these green bonds are not that green after all. And investors don’t have time to look into the details.
We have the time, the tools, and the resources. In addition to direct communication with the companies themselves, and indirectly via joint engagements, we also use databases with standardised scoring systems which help improve the transparency and objectivity for ourselves and in our communication with clients. With the help of database scoring, comparisons can be made between bond issuers and also between funds.
New green strategy… same focus on long-term credit quality
Evli’s portfolio managers are not short-term, in-and-out traders. We invest for the long-term. And green investing is long-term investing. Companies that are active in the green bond market tend to be more forward-looking and innovative, investing to meet the demands of the future. In contrast, non-green issuers tend to be traditional, mature companies that prefer the status quo.
That’s why our new green strategy will focus entirely on the corporate bond segment. We strongly believe that the corporate sector will play the defining role in developing a cleaner environment. In our opinion, a pure corporate bond approach benefits from the lack of sovereign or agency exposure seen in other green funds, because asset allocation is more efficient with fund products that are more specified.
These corporates are participating in innovations linked to global megatrends. ‘Stimulus’ is a word we often hear in finance lately, and green issuers have their own kind of stimulus in the form of the $6.9 trillion that is needed in infrastructure investments each year in order to meet the UN’s Sustainable Development Goals and the Paris Agreement targets. It is up to the companies to make these investments and green bonds are a direct way to urge and support them to do so.
Green issuers also have the benefit of regulatory change as a boost to their business, while the non-green, status quo issuers likely see regulatory change as a hurdle. This month, even the ECB’s Christine Lagarde has called for central bank purchases to be ‘greener’. So, while almost every sector in the world is hurting right now, from retail to airlines, it is the green sectors, such as renewable energy, that are among the very few which are expected to grow throughout 2020.
We’ve already witnessed the superior performance of ESG funds vs non-ESG funds. Now imagine what kind of outperformance can be expected when that $6.9 trillion boost comes into play. Going green is NOT about sacrificing any return expectations or settling for an underperforming asset class in order to do good. The road to a cleaner tomorrow is paved, not with gold, but with green. Join us for the ride.
3) OECD, 2018
4) Morningstar / Financial Times