Chris McKnett is a Vice President of ESG Investing at Boston-based State Street Global Advisors, the world’s largest institutional investment manager
Sustainability is the investment logic looking at social, environmental and governance (ESG) issues. The main players to influence this are institutional investors, and Chris promises to prove sustainable investments are easy, and high performing. Investors currently tend to focus on economic metrics, but with depletion of natural resources, increasing pollution and an increasing population, it is hard to ignore the economic impacts of sustainability metrics.
The private sector is also seeing the need: 80% of CEOs see sustainability as an innovative, competitive advantage, while 93% see it as important for the future of their business. On the share market, stocks with good sustainability (ESG metrics) perform as well as other stocks, and the large blue chip stocks with high ESG outperform their low-ESG rivals.
Some institutional investors are taking ESG into account in the investment process, for example Calpers is the second largest investment fund in the US and moving towards 100% sustainable investment. The philosophy is that value comes from a combination of financial, human, and physical capital. On the flipside, plenty of other funds claim they are focussed only on high returns, or don’t want to use the fund to make political statements. Chris counters that returns are compatible with sustainability, and it doesn’t need to be seen as a trade-off.
Institutional investors hold 8 times more money than the US GDP, so have plenty available. If we could channel that towards companies that improve social and environmental causes it could have a huge impact towards solving problems such as hunger, or access to clean water.
John F Kennedy stated “There are risks and costs to a program of action, but they are far less than the long-range risks and costs of comfortable inaction”. It makes sense to invest sustainably so that we can retire wealthy, but also into a better world.
I thought this talk was a little light on details, especially examples of what a sustainable company is. It didn’t seem clear whether sustainability had to be a core product of the company (eg delivering water infrastructure to developing world), or whether it could be a bank / resources company with a strong sustainability culture. I tend to think the latter, but a lot of the benefits seemed like they only made sense if the company actively solved ESG issues.