A new report touting the importance of ESG factors and their impact on investments and investment decisions has found that better environmental stewardship can unlock significant value in private equity. Another key finding is that emerging markets offer some of the world’s most consequential investment opportunities for investors focused on mitigating global climate and social risks.
The semiannual Global Intelligence report from Manulife Investment Management highlights the fact that “sustainable investing is no longer an option. It is a necessity…,” says Christopher P. Donkey, CFA, global head of public markets at Manulife Investment Management.
When it comes to emerging markets (EMs), the report finds that emerging market companies currently rival their developed-market counterparts in terms of the sophistication of sustainability practice and growth potential.
The IEA stated in 2019 that, “There is a new reality in clean energy.” The world’s major emerging economies — including China, India, and several others — are moving to the center stage of the clean energy transition, it said, adding, “In fact, taken as a whole, Asia — which dominates the MSCI Emerging Markets Index — is the world’s largest investor in low-carbon energy sources.”
The significant stake in green energy capacity couldn’t have arrived too soon for emerging markets — or the world — as Asia is expected to drive more than two-thirds of new global energy demand over the next 20 years, per the report. However, the report prevaricates that, “…if we see a collective failure to coordinate climate policy, practice, and investment, then EM growth itself is more likely to precipitate a disappointing and painful future of ongoing structural dislocations.”
Businesses Must Heed the Call
Businesses that are inattentive to growing calls for responsible stewardship of environmental and social capital are likely to lose competitive advantages and find themselves spurned by consumers and investors alike, the report warns.
“Whether coming from customers, employees, suppliers, or communities more broadly, the call for sustainable practices has only increased since the start of the pandemic,” it says.
Consumers say their spending is migrating toward companies conducting operations sustainably, and investors have been taking notice. In fact, sustainability has become an imperative since so many investors now demand it. While they still require strong investment returns, sustainability has risen to a commensurate level for many investors.
The reasons aren’t purely altruistic, according to the report. In fact, 66% of limited partners say that value creation is a leading driver of their ESG initiatives (per PwC).
Three-quarters expect sustainability to influence their investment decisions over the next five years, according to Coller Capital; additionally, says Ceres, 86% expect ESG investment opportunities to increase, and 93% agree that focusing on ESG themes will generate attractive investment opportunities.
Another recent indication of how ESG investing is on the rise was the announcement earlier this week that more than 20 leading companies — including 3M, ADM, Apple, Bank of America, FedEx, General Motors, Honeywell, Nike, Smithfield Foods and TD Bank Group — have invested in TPG Rise Climate, the climate investing strategy of TPG’s global impact investing platform. TPG Rise Climate announced its first-close of $5.4 billion in subscriptions to its inaugural fund, Environment + Energy Leader reported.
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