The role of academia in strengthening impact investing

Our founder, Ivo Knoepfel, has recently been appointed as chair of the Advisory Board of the Center for Sustainable Finance and Private Wealth (CSP), a research and teaching institution at the Department of Banking and Finance at the University of Zurich. CSP is unique in its position at the intersection of research and training, bringing together scientists, wealth owners, and investment professionals in order to generate knowledge and to mobilize capital toward impact. In the past years, CSP has trained hundreds of wealth managers and asset owners, with a particular focus on next-gens. Its ground-breaking research has helped understand the mechanisms through which asset owners can contribute positive impact in the real world. onValues is convinced that the critical voice of academia is needed to challenge the conventional wisdom of investors and improve impact investing practices, and is therefore proud to support CSP.

Helping clients reduce their carbon footprints in real estate

The International Energy Agency estimates that buildings and construction are responsible for nearly 40% of total direct and indirect CO₂ emissions worldwide, the largest contribution of all sectors. While much of the conversation is centred around reducing energy for heating, cooling and lighting of buildings (accounting for 28% of global CO₂ emissions), little attention is still being paid to the 11% of global CO₂ emissions caused by the manufacturing, transport, construction and disposal of building materials, also known as "embodied carbon". The share of embodied carbon tends to increase over time and it is therefore crucial to focus on solutions such as wood construction, recycled steel and low-carbon cement going forward if the world is to meet the Paris Agreement global warming goals.

At onValues we observe a trend towards higher allocations to real estate in our clients’ portfolios. We are therefore committed to helping our clients find ways to reduce the greenhouse gas intensity of this asset class, mainly by partnering with developers and asset managers that have set out to substantially reduce direct and indirect emissions in their portfolios and have defined clear targets for this.

IPCC’s latest report – a wake-up call

Time is running out for averting catastrophic climate change. The recently released sixth report of the Intergovernmental Panel on Climate Change contains more precise and alarming predictions of expected climate disruptions based on direct observations of the changes already underway and on improved climate models. It is now clear that keeping the warming below 1.5°C, as laid out in the Paris agreement of 2015, would require the whole world, not just rich countries, to get net emissions of carbon dioxide down to zero before 2050 – a huge challenge for our political and economic systems.

In light of the urgency of the matter, we are assisting our clients in identifying ways in which their investments can support the alignment of our economies to a net-zero emission pathway. This includes forceful engagement strategies with large emitters in their portfolios, targeted investments in clean energy infrastructure and in carbon capture technologies, investments that enhance carbon sinks in soils and forests, and investments in companies providing break-through innovations.

Ivo Knoepfel joins the board of Global Footprint Network

onValues is stepping up its engagement in support of initiatives that contribute to understanding planetary boundaries and assessing their relevance for financial and investment decisions. In this context, our founder was recently invited to join the board of Global Footprint Network. The Network is famous for its comprehensive set of Ecological Footprint metrics and related advocacy. The Ecological Footprint continues to be the only metric that holistically compares human demand on nature against nature’s capacity to regenerate. It is based on simple, straightforward accounting – not on arbitrary scoring. Since its inception, Global Footprint Network has calculated Footprints of countries for each year that UN data has been available. Its engagement reach includes:

It’s time for our economic system to acknowledge interdependence

Milton Friedman’s 1970 essay, “The Social Responsibility of Business Is to Increase Its Profits,” has just turned 50 and this is prompting a range of initiatives calling for a shift to “stakeholder capitalism” responsible to workers, communities, suppliers and the environment as well as to investors.

A year ago, 181 CEOs members of the Business Roundtable pledged themselves to the stakeholder approach instead of the “shareholder supremacy” preached by Friedman. “It is good that the business community has awaked,” economist Joseph Stiglitz recently said in The New York Times. “Now let’s see whether they practice what they preach.”

One of the advocacy initiatives recently launched is Imperative21, whose goal is to champion an “economic system that is designed for interdependence, invests for justice, and accounts for all stakeholders”, as B Lab’s Jay Coen Gilbert, one of initiators of Imperative21 recently wrote in the New York Times.

The stakeholder approach has long been part of the framework that onValues uses in advising its clients. After 30 years of sustainable investing experience, we have enough evidence that professionally managing and taking into account stakeholder concerns is key to the long-term success of both companies and investors.

onValues endorses Club of Rome call to action

onValues is officially endorsing the Club of Rome's call to action to global leaders in relation to the ongoing Corona crisis.

It states that "[...] It is important to acknowledge that the planet is facing a deeper and longer-term crisis, rooted in a number of interconnected global challenges. [...] About 70% of [emerging infectious] diseases originate in animals (mainly wildlife). Their emergence results from human activities such as deforestation, expansion of agricultural land and increased hunting and trading of wildlife. [...] How leaders decide to stimulate the economy in response to the corona crisis will either amplify global threats or mitigate them. The risk is making nearsighted decisions that increase emissions and continue to degrade nature in the long term".

It concludes by calling on leaders to have the foresight to make their economic recovery plans truly transformative by investing in nature regeneration, low carbon development and sustainable agriculture and food systems.

Learning from the corona crisis and staying the course on climate change

The ongoing crisis is painfully reminding us of the vulnerability of our economies and global financial systems and is a wake-up call for strengthening the resilience of those systems. It is also a reminder of the urgency of reducing the risks of unconstrained climate change leading to more frequent shocks of this type in the future.

How can investors contribute to increasing the resilience of our economic and financial systems? First, align your investment portfolios to a scenario leading our economies to net-zero greenhouse gas emissions by 2050 at latest aimed at limiting temperature rise to 1.5°C above pre-industrial levels (e.g. by joining the UN-convened Net-Zero Asset Owner Alliance). Second, if your mandate permits, allocate a part of your capital to companies providing break-through innovations in areas such as clean energy, resource efficiency and the transition to a circular economy. Third, take a long-term approach to investing avoiding speculative investments and asset classes that destabilise financial markets. Fourth, take a forceful stewardship approach (with clear goals that if not met lead to divestment) in engaging with companies that are working against a transition to a more sustainable economy. Fifth, collaborate with other investors in shaping a more resilient architecture for our financial systems (e.g. through initiatives such as Principles for Responsible Investment, Climate Action 100+, the Institutional Investors Group on Climate Change, the UNEP Finance Initiative etc.).

The current crisis is ultimately strengthening the case for sustainable investing and could reveal itself as a powerful accelerator toward a more sustainable trajectory of our societies.

Can investments contribute to protecting biodiversity?

On behalf of RS Group, we looked at different ways in which financial markets and investors can contribute to reducing the destruction of tropical forests and the unsustainable use of land and oceans, while helping to mitigate climate change and to provide a livelihood to local communities for them to become stewards of local ecosystems. Given our economic system does not allocate a value to natural capital, it is almost impossible to design investment structures that will be financially attractive for commercial investors, unless concessionary capital or grants are used to de-risk or enhance returns. This is exactly what blended finance structures (e.g. structured funds, bonds and other vehicles) aim for.

Together with RS Group we found that more innovation is needed in the field and on 11 November 2019 RS Group and Convergence (a think-tank specialised in the field) launched a US$3 million design funding window for innovative and catalytic blended finance solutions focused on natural capital in Asia. By supporting the design of new blended finance structures, the window will draw new investors into this critical, but underfunded development area. Asia’s enormous economic growth in the last few decades has come at a high cost to its environment, leading to deterioration of land, freshwater, and marine ecosystems and exacerbating water and food insecurity and climate vulnerability. Globally, it is estimated that there is a US$200-300 billion gap per year to preserve the world’s last healthy ecosystems.

Switzerland on the move!

Switzerland was in the 1990ies an early mover in the field of sustainable investing. Examples include some of the first environmentally focussed funds, the birth of microfinance investment managers, large banks integrating ESG criteria in their credit risk assessment, the advent of the first sustainable stock market indices and, with the Ethos Foundation, the launch of one of the first collaborative stewardship initiatives in Europe.  A lack of leadership by the majority of asset owners in the country has slowed down this development until recently. But now, a new dynamism can be observed: sustainable assets under management are rapidly rising, with Swiss Sustainable Finance the sector has gained a strong voice and leading trade organisations including SwissBanking, Swiss Fund & Asset Management Association and Swiss Insurance Association now recognize that Sustainable Finance will be a key competitive advantage for the Swiss finance sector. This is well described in a recently published report by Swiss Sustainable Finance.  It mentions onValues as one of the leading investment consultancies supporting the growth of the sector by advising asset owners in their implementation of investment policies and processes.

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