Investors and asset managers are chasing a new shade of green

The environment and other aspects of sustainability are becoming top concerns for investment CEOs and their clients.

Olwyn Alexander

The year 2019 was one of cataclysmic fire and rain. Wildfires swept across California, the Amazon, and Australia, and storms and floods deluged parts of six continents — a string of natural disasters that scientists say were caused by the changing climate. And in 2020, the COVID-19 pandemic has coursed through the world.

Historically, events like these — along with other concerns that are included in what Wall Street calls environmental, social, and governance (ESG) issues — haven’t been a major business concern for most asset and wealth management (AWM) firms. As recently as 2016, only 10 percent of AWM CEOs counted themselves as “extremely concerned” that climate change could threaten their business’s growth, according to PwC’s CEO Survey. But that’s changing. In the 23rd Annual Global CEO Survey, which was released in January 2020, that share rose to 25 percent, and 62 percent of AWM CEOs expressed some level of concern about the climate. They were similarly worried about income inequality and social instability. Now, in response to the coronavirus pandemic, a PwC survey of chief financial officers shows that as of April 6, 73 percent of respondents believed the outbreak could have a significant impact on their business operations.

In January 2020, the world’s largest asset manager, BlackRock, announced in a letter to clients that it would place sustainability, particularly with respect to global warming, at the center of how it “manages risk, constructs portfolios, designs products, and engages with companies.” The company’s goal, ultimately, is to supplant its portfolio of passively managed funds with sustainable alternatives; to reduce ESG risks in its actively managed assets, including by divesting from coal production; and to push portfolio companies to completely disclose how they are managing these risks.

Of course, many smaller investment firms specialize in sustainable investment, and most of the trillion-dollar investment managers also offer some ESGdriven products. Last June, France’s Crédit Agricole announced its intention to fully withdraw from financing coal power and shift investment capital to clean energy sources, including through its US$1.6 trillion asset management subsidiary Amundi. But should BlackRock fully implement this ESG strategy across the $7 trillion in assets it manages, it would set a new standard for the industry.

What’s driving this strengthened commitment to ESG? To be sure, climate activism is surging. Swedish student–activist Greta Thunberg and her confederates around the world have captured much of the attention, but various other campaigns have also put pressure on asset managers.