John Bai of NEI Investments, dives into the factors behind the growth of RI solutions that focus on ESG standards
As the world faces alarming challenges, including social unrest and environmental disasters, a growing number of investors are becoming aware of responsible investment options that emphasize high environmental social, and governance (ESG) standards while bringing in substantial returns. In Canada, a leading provider of RI solutions is NEI Investments, which has been recognized by Wealth Professional magazine as a 5-Star ESG Fund Provider.
In an interview with James Burton, WP’s managing editor, John Bai, SVP and chief investment officer at NEI, said that RI had grown by more than 50% from 2016 at the global level. He cited data from the latest Global Sustainable Investment Review, which showed that worldwide sustainable investment amounted to $35 trillion as of end-2020, while information from Morningstar indicated that record flows continue this year.
Bai summed up the three factors driving market interest in RI. First, RI makes sense because it is a “well-researched discipline,” and academic studies provide conclusive evidence on the benefits of such investments.
“For instance, if you look at the cost of capital, 90% of studies show that sound ESG standards actually lower the cost of capital for companies. Eighty-eight percent of the reviewed studies showed that solid ESG practices actually result in better operational performance, and all of that leads to stock market performance, which according to 80% of the studies is positively correlated to good corporate and social responsibility practices,” he said.
Second is the actual demand from investors who prefer funds with a real-world impact. “You know, 2020 was a crazy year in many respects – it was the year of a healthcare crisis, a climate crisis, a social climate crisis, and Black Lives Matter. One of the lessons that we learned was that investors wanted to line up their investment portfolios with their values.”
The third factor, according to Bai, is the sense of urgency resulting from the need to address the effects of climate change. “The International Energy Agency, the world’s leading think tank on energy, says that to reach net zero emissions, we need to ramp up investments in energy infrastructure to $5 trillion per year. It’s impossible for public monies to be investing in that alone. They need public and private partnership and, for companies who want to be part of the solution, there’s a tremendous amount of economic opportunity,” he explained.
Furthermore, RI provides more downside risk protection, especially during social and economic crises. Bai added that NEI Investments has a five-year track record in supporting innovative companies that have developed commercialized solutions to reduce carbon emissions, such as those in water conservation, waste management, and sustainable agriculture. The positive returns from these funds in the last few years prove that financial institutions can offer “products that increase the wealth of our clients, increase the health of the planet, and improve human conditions around the world”.
Turning to his own firm’s efforts, Bai said NEI is one of the leading investors in a green hydrogen project that includes a pioneering clean-hydrogen energy park, a hydrogen-powered ferry, and a high-purity hydrogen cavern. Finally, he emphasized NEI’s commitment to impact investments “made with the intention to generate positive, measurable social and environmental impact alongside a financial return”.
