By Thomas Fekete, managing director, BlackRock head of sustainable investment solutions for EMEA and APAC
We have reached an inflection point in sustainability. The tremendous toll of the COVID-19 crisis – on health, economic well-being, and everyday activity – has precipitated a widespread reassessment of the way we live our lives. This has led to both a greater awareness of the sources of resilience for investors and governments and a desire to associate with more sustainable organizations for businesses and consumers. As we head into 2021, we have identified five trends which we believe will shape sustainable investing next year.
1. The tectonic shift towards sustainability is reflected in shifting preferences and flows into sustainable assets
2020 has been a record setting year for organic as- set growth in sustainable strategies, with global investors pouring approximately US$203 billion in sustainable mutual funds and ETFs1. Total sustainable assets under management now surpass US$1.8 trillion dollars in the mutual fund and ETF market. This shift held even in times of uncertainty – as investors sought to rebalance their portfolios in Q1 2020 market turmoil, they increasingly preferred sustainable funds over more traditional ones. And according to the results from BlackRock’s Global Sustainable In- vesting Survey, this trend is only set to grow. Respondents representing US$25 trillion in AUM across 27 countries expect to double their sustainable assets under management, on average, in the next five years2.
2. Climate change remains ever in focus with society ringing the alarm bells about the urgency of curbing emissions
Bold commitments from governments such as China and the United Kingdom signal a new phase of action against climate change, after years of perceived inaction following the signing of the Paris Agreement. With a new US administration promising to rejoin the Accords (more on that below), we could be seeing more regulatory action and global coordination on the climate next year.
Institutional investors have assumed the mantle in climate leadership, joining forces in efforts to better define and measure a portfolio’s impact on climate change, including recent efforts from organizations such as the TCFD3 and IIGCC4. Investors have also taken a hard- er stance on high carbon emitting energy sources such as thermal coal, with Black- Rock exiting from producers that generated more than 25% of their revenue and coalitions such as the Net Zero Asset Owners Alliance publishing their recent position on thermal coal5.
We see more and more clients looking to understand the impact of climate change on their portfolio and seeking innovative solutions to mitigate that impact. We believe this will be at the forefront of investment discussions next year.
3. Efforts abound in creating standardization across various sustainability reporting frameworks
A key ingredient in this effort will be achieving a common understanding – across asset owners, asset managers, other market participants and regulators – of what is expected from financial products that offer exposure to sustainable investment themes and what is expected from corporates who are be- ginning to release greater sustainability disclosures.
2020 saw the beginning of these efforts, with organizations such as CDP, CDSB, GRI, IIRC, and SASB signing a statement of intent to find greater harmonization amongst the voluntary frameworks6. Governments are also increasingly supportive of these voluntary frameworks, with the UK announcing its intention to make TCFD-aligned disclosures mandatory across the economy by 2025. These types of efforts, coupled with regulatory action such as the EU’s Non-Financial Directives which come into effect in 2021, will lead to better reporting and data for both investors and consumers to make informed decisions.
4. Sustainability may go global
Sustainable investing has often been referred to as a European phenomenon, but 2020 has shown us that investors and governments in North America and Asia are beginning to take bold action, especially on the topic of climate change. Institutional investors in California and New York have become quite vocal in calling on high fossil-fuel emitters to change their practices and the ambitious climate plans laid out by the Biden administration will be one to watch very closely. Bold commitments from the US, in addition to those already laid out by China, the UK, and the European Un- ion may very well correct the path towards limiting temperature rise to below 1.5 degrees by 2050.
5. From shareholder capitalism to stake- holder capitalism
According to the 2020 Edelman Trust Barometer survey, 87% of people believe that stakeholders, not shareholders, are most important to companies’ long-term success7. The COVID-19 crisis has shed even greater light on this, with BlackRock research showing that strong companies with a record of good customer relations or robust corporate culture have demonstrated resilient financial performance8.
Companies themselves are starting to agree. In 2019, 181 CEOs of the Business Roundtable signed a new Statement on Purpose of a Corporation, committing to deliver value to all stakeholders – custom- ers, employees, suppliers, communities and shareholders.
While 2020 tested many companies on how they care for and deliver value to all their stakeholders, we’ll be watching to see how they build their strategic recovery plans in 2021 in a way that builds on this effort for the long-term.
TCFD – Task Force on Climate- related Financial Disclosure
IIGCC – Institutional Investors Group on Climate Change
CDSB – Climate Disclosure Stand- ards Board
GRI – Global Reporting Initiative IIRC – International Integrated Re-
SASB – Sustainability Accounting Standards Board
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested. BlackRock has not considered the suitability of any investment against your individual needs and risk tolerance. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. This information should not be relied upon as research, investment advice, or a recommendation regarding any products, strategies, or any security in particular. This is for illustrative and informational purposes and is subject to change. It has not been approved by any regulatory authority or securities regulator. All figures are from BlackRock as of December 2020. 1447247
Sources: 1) BlackRock Sustainable Investing, September 30, 2020 with data from Broadridge and Simfund. 2) BlackRock 2020 Global Sustainable Investing Survey, November 2020. 3) The Portfolio Alignment Team of the TCFD released the report, Measuring Portfolio Alignment, in November 2020. 4) IIGCC their Net Zero Investment Framework for consultation in August 2020. 5) The Net Zero Asset Owners Alliance released their position on thermal coal in November 2020. 6) Statement of Intent to Work Together Towards Comprehensive Corporate Reporting, September 2020. 7) 2020 Edelman Trust Barometer Report, January 2020. 8) BlackRock Sustainable Investing, Sustainable Investing: Resilience amid uncertainty, May 2020.