I’ve just returned from FundForum International, one of the world’s biggest gatherings of “global decision-makers, innovators and investors.” The four-day conference, held in Copenhagen, was a great opportunity to learn, connect and present Util to a wider audience.
It was also my first time speaking at a mainstream investment conference. Not that it was immediately distinguishable from a responsible investment conference. More than trade wars or Treasury yields, Brexit or blockchain, the one topic that dominated conversations was sustainable finance.
My five key takeaways:
An entire day was dedicated to environmental, social and governance factors (ESG),with a further morning focused on climate and sustainability regulation. It came up in relation to macro trends, risk, portfolio allocation, new technologies and next-generation investing.
Two things happened at the main stage that reinforced the extent to which investors are thinking about it.
First, a stake in the ground from the world’s biggest asset manager. Evy Hambro, BlackRock’s head of thematics, argued sustainable investing today maximises financial returns tomorrow. Or, in other words, investors should sacrifice short-term financial returns to ensure companies focus on their other stakeholders, ultimately resulting in more profitable investments.
Second, a panel moderator asked the audience whether it believed ESG integration equalled lower financial returns. One audience member put their hand up. A few years ago, said the moderator, all but one raised their hands.
If ESG sheds light on the financial and non-financial sustainability of an investment, impact analysis and integration will illuminate its effect on the wider world. This presents investors with two opportunities: one, macro and thematic investing, and two, aligning investments with values.
While impact investing has traditionally been framed in the context of retail and private markets, it was encouraging to hear investors discussing it in the language of stakeholders, outcomes and returns. There seemed to be consensus that, as ESG is integrated into all investment strategies, the industry will turn to impact as the next point of differentiation and opportunity.
In the game of conference bingo, machine learning (ML), artificial intelligence(AI), blockchain and robo-investing are the first terms to tick off.
Technology is a hot topic across in all corners of investing, not least impact and sustainable investing. ML and AI are used to support investment decision-making and automate time-consuming middle and back office functions. Blockchain, though still very much a solution looking for a problem, is being considered at as a way to track the provenance of components and end products. Robo-investing is cited as the bridge to educate and engage retail investors.
These solutions are only just beginning to shape impact investing. Fully applied, they have the potential to bring it into the mainstream.
One morning was devoted to sustainability policies, guidelines and regulations. The EU is leading the charge with its sustainability taxonomy and disclosure framework. There’s also some interesting work being done to redefine fiduciary duty to include the protection and enhancement of value for all stakeholders.
There was, however, concern that regulation is jumping ahead of a nascent industry. Investors have only taken the sustainability baton recently, with many strategies, data and analytics still untested.
I would love to see some of the regulatory focus diverted towards actionable analytics and sustainable investing innovation, with regulation supporting its growth.
There were a lot of sobering presentations about the impending climate crisis.
One pointed out that, through our actions as investors, we are contributing to a 4.5-degree world: that’s beyond the point of no return. At the same time, KPMG’s annualCEO survey put climate as the biggest risk to business.
The staggering scale of the world’s biggest challenges demands an industry-wide response. While momentum is growing, our industry is a tanker. To change its course, we need to match words with actions and drive bold solutions that match the scale of the crises we face.