According to the ancient myth of King Midas, everything he touched turned to gold. The king saw that the most precious commodity to him was in tangible wealth. When Midas turned his daughter to gold, he would only see in atonement that the living are the most important asset he could ever embrace.
Much like King Midas, investors are driven by self-interest to preserve the world in which all live. Unlike King Midas, there doesn’t need to be a tradeoff between the "good" of sustainable investing and the “bad” of making money. Investors are driven by a genuine interest to engage in sustainable and responsible investing, and evidence shows that such investments are driving competitive returns that perpetuate long-term financial performance outcomes.
The growing concern around the use of plastic and the impact of plastic pollution on the environment has developed as an area of focus for investors as climate change takes effect. While society bemoans the depth of the crisis, it is important to see that investors are also actively engaged and taking part in an increasingly enriched dialogue that drives actionable change.
A unique opportunity exists for asset managers and institutional investors to implement ESG (environmental, social and governance) investment strategies into their portfolio offering.
[Figure 1: Online conversation across a 30day period, highlighting corporations under scrutiny from NGO, international institutions and activists over plastic waste concerns. Volume of conversation, represented by the size of the coloured bubbles, shows that PepsiCo, Coca-Cola, and Walt-Disney feature prominently and were urged to take real step-changes to their plastic production, packaging, and waste recycling policies. Source: Polecat Intelligence]
Capitalising on reputational gains, investors and companies alike
Investing in sustainable businesses that score well on ESG criteria is advantageous. According to Blackrock, a key investor in supermarket chain Tesco, companies that display these attributes often adapt to ESG risks and are therefore more resilient. They also provide more sustainable long-term returns and gains for their clients.
There’s a large reputational element as well, for both investors and the companies that they have a stake in. Businesses that are perceived well with social purpose will have an edge in the market and in attracting talent to work for them. People are more likely to want to do business with, and be employed by, a company with good ESG characteristics.
Research from PIMCO puts totals assets under management for sustainable investments at more than $22trillion globally and anticipates this trend to continue over time as investments move mainstream. Importantly, a significant pillar of its ESG investment platform is founded on sustainability principles—subjecting businesses in their portfolio to a rigorous ESG evaluation process to drive value, strong returns, and to help clients manage their exposure to risk.
Businesses should worry if they are not compliant. "Greenwashing" could disqualify a company from inclusion in ESG-led portfolio investment strategies. The stringent processes applied reflect the standards by which companies will be judged. After all, consumers will now issue their own assessment of misbehaving companies, and act accordingly on social media to the ruin of many corporate reputations.
Investors will push and punish
By aligning to social purposes and sustainable goals, global corporates can out-perform competitors to create longer-term value, and in doing so, gain reputational capital. This is demonstrated in the views of their most important stakeholders. Investors do not just show an eagerness to engage in a dialogue for responsible investing, but also a willingness to punish companies for lapses in action and poor environmental practices.
In June this year, As You Sow, a shareholder advocacy group, pressured the likes of PepsiCo, Unilever, and Procter and Gamble to reduce plastic packaging and provide full disclosure on a number of plastics reduction goals. Key investors including Aviva Investors, Hermes Investment Management, Impax Investment and NEI Investments, representing more than $1trillion of assets, issued a letter of demand which placed pressure on corporations to act immediately to redress plastic waste or risk reputational damage.
Enhancing performance and long-term value creation
Companies that align with society’s shifting priorities for sustainable drivers have also spurred greater R&D innovation and created competitive advantage for corporates.
Investment firm Liontrust has recently diversified its portfolio to include companies that are sustainable and innovating within the area of plastic waste production.
Other large investors also watching closely the likes of Smurfit Kappa, a paper packaging company set to see rapid growth in the development of alternative plastic materials.
The Midas touch, the wealth of the world to spoil
Investors acknowledge the challenges of society and the new climate realities which we all live in. Understanding the breadth of the problem and playing a significant role in global capital markets, institutional investors drive actionable change through stakeholders and the value-chains they enable.
Much like the myth of Midas, who ultimately sought to share his wealth with the city and thrive among its citizens, the growth of cities is driven by a global economy. As wealth increases among populations around the world, engagement with society on climate related issues is absolutely necessary— whether in the drive for plastic-free oceans or cleaner air for everyone. Active engagement in ESG is worth its weight in gold.