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Investments - and investors - must change for finance to be truly 'sustainable'

9 April 2018 – Roelie van Wijk-Russchen, Chair of the Investment Leaders Group and Global Head of Responsible Business and Public Affairs, Aegon Asset Management, reflects on the role of investors in delivering the Sustainable Development Goals. She welcomes the EU Commission’s Action Plan which focuses on how to create a sustainable finance system, by identifying projects that improve Europe's competitiveness, the wellbeing of its citizens and its transition to a more equitable, sustainable world.

To achieve the UN’s Sustainable Development Goals by 2030 in Europe, an estimated EUR180 billion a year will have to be diverted from investments that currently do not contribute enough to helping achieve critical global challenges. This will require a shift from the financial sector to achieve globally inclusive sustainable growth.

Investors will have to be ready to spot opportunities coming their way, but the opportunities themselves must materialise primarily outside the financial sector, and this is where the European Commission can help. 

The Commission has recognised this in its recent Action Plan on Sustainable Finance, which provides more clarity on its objectives for sustainable finance. As investors, we at Aegon, a global, active investment manager, have always been supportive of sustainable finance and were encouraged to see a strong momentum.

Many of the Commission’s recommended actions target investor behaviour, such as better management and disclosure of sustainability aspects of investments, or clarifying duties of investors. However, we  need to manage expectations on how much this will ultimately contribute to “increasing capital flows to sustainable investment”.

As investors at the forefront of integrating environment, social and governance (ESG) factors into investment research, Aegon has sought out information and data on the sustainability aspects of investments. 

But, in our experience it has not led to a huge shift of capital towards sustainable assets. Of course, if more sustainability information is made available to financial markets and more investors incorporate ESG, we can expect to see a larger change, but this will only get us halfway to where we want to be.

Having more clarity on investor duties or more information on sustainability aspects of investments will not generally make sustainable investments more attractive to institutional investors.

Many of us are – or invest on behalf of – insurance companies, pension funds and banks. These institutions were established to make investments for specific goals, matching their investment plans with the obligations to their clients. Institutional investors will, and should, continue to focus first on financial aspects of investment, including stability of cash flows, financial return, risk and maturity. 

Therefore, we expect more from EU actions aimed at changing the nature of investments themselves, in particular under the header: “Fostering investment in sustainable (infrastructure) projects”.

In order to mobilize private capital, the Commission is calling for a new kind of cooperation between public authorities, investors and project owners. Because, rather than a lack of public funds, it appears that a lack of development capacity is standing in the way of finance for sustainable projects. 

If executed well, this is where the Commission should get most bang for its buck. The EU, or national governments, can make projects investable by tailoring them to investment needs of institutional investors: through public funding (blended finance), through budget guarantees and offering technical assistance to project sponsors.

One way that policymakers can kick start this is to give clarity on something that economists and investors have been asking for years: clearer price signals such as a stronger and more realistic price on carbon, which puts a value on greenhouse gas emissions. Such market guidance could support investors in making the right decision in financing low carbon solutions, without compromising other relevant Sustainable Development Goals.

The members of the Investment Leaders Group at the University of Cambridge Institute for Sustainability Leadership (CISL) include some of the world’s largest investors, and we take our responsibility in sustainable finance seriously.

But we strongly endorse the need to find a new way of working together that the Commission proposes - to help find projects that improve and promote Europe's competitiveness, the wellbeing of its citizens and its transition to a more equitable, sustainable world.


 

Blog first published on the Thomson Reuters Foundation news website. 

 

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About the author

Roelie van Wijk Russchen

Roelie van Wijk-Russchen is the Chair of the Investment Leaders Group at the University of Cambridge Institute for Sustainability Leadership and Global Head of Responsible Business and Public Affairs, Aegon Asset Management.

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