Sustainable Investment: Why Invest In The Planet?

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Reducing carbon emissions and protecting biodiversity makes companies more resilient to shocks, more relevant to society and more valuable to investors

Early last month, NextEra Energy, a renewable energy company based in Florida, became more valuable than Exxon Mobil. Only 12 years ago the oil giant was the largest public company on earth.

This dramatic reversal of fortunes made headlines and for good reason: it dramatically demonstrated that investors valued clean energy above fossil fuels. Stock markets are signalling that climate action – in this case, zero-emissions electricity – is the future, and that the heyday of oil economies lies in the past.

For climate activists, such market signals are a real breakthrough, as well as a validation. For years, organisations such as the UN Global Compact have been urging businesses to adopt more sustainable business practices and strategies that safeguard the global commons.

We had science on our side: we could point to rising greenhouse gas emissions, overconsumption, the destruction of natural habitats, the loss of biodiversity. We could even point to clear wins – greater efficiency, reduced climate risks – for businesses investing in sustainability. But we could not show conclusively that markets reward sustainable companies more than carbon-intensive ones. Now we can.

”Our research shows that businesses with higher environmental, social and governance (ESG) standards are more profitable”

Investors appear to be doubling down on sustainable companies and sectors in response to our overlapping health, economic and environmental crises. According  to the ratings company Morningstar, investors poured $20.9 billion (£15.85bn) into sustainability-focused US funds in the first half of 2020. That is roughly the same as the whole of 2019 and about four times as much as in 2018.

Furthermore, our research shows that businesses with higher environmental, social and governance (ESG) standards are more profitable, with 6.3 per cent higher cumulative relative returns during the first four months of this year compared to the lowest-rated companies. Evidence also shows that businesses with long-term sustainable strategies are better at addressing short-term challenges.

This matters because challenges don’t get much bigger than those we are facing right now. Around the world, entire economic sectors, such as tourism, have been devastated by the pandemic. Countless businesses large and small are struggling. Hundreds of millions of people have lost their jobs.

Companies understand that their survival depends on how they respond to the cataclysm unleashed by Covid-19 and climate change. Focusing on the nearest or most pressing emergency, such as the collapse in demand for their services or a broken supply chain – or reaching for solutions that have worked in the past – would be mistaken. They will remain vulnerable to future systemic shocks like pandemics and the worsening effects of global warming if they carry on as before. As UN Secretary-General António Guterres has said, to achieve lasting prosperity we need to build a future that protects people and the planet.

There are enormous opportunities for the private sector in the transition to a sustainable, climate-safe future. These exist not only in new sectors such as renewable energy and electric vehicles, but also in bringing sustainable practices and innovations to traditional ones like agriculture and manufacturing.

A report from the Global Commission on the Economy and Climate estimates that bold climate action could generate 65 million new jobs and at least $26 trillion in net global economic benefits worldwide by 2030. The Business & Sustainable Development Commission, meanwhile, estimates that meeting the UN’s 17 Sustainable Development Goals would generate a further US$ 12 trillion in business savings and new revenues, along with an additional 380 million new jobs in the same timeframe.

Continue reading this article by Sanda Ojiambo, Executive Director and CEO of the UN Global Compact, HERE