Why sustainable investment firm expects a boost in fossil free investments next year
Mike Thiessen is a Partner & Director of Sustainable Investments at Genus Capital , an investment firm and a pioneer in Canada’s divest-invest movement.
2019 will be remembered as the year of climate action, with hundreds of thousands of Canadians across 85 cities joining climate strikes to demonstrate their support.
This activism has led to an increase in Canadians questioning how their investments can support climate action. Our team at Genus Capital has already seen an increase in clients asking about sustainable investing, and we predict that climate change will be the biggest concern for investors in 2020.
Here’s our top four investment predictions for the coming year.
1. Stakeholders demanding public and educational institutions to divest will become the norm, not the exception.
Pressure for large organizations, including universities, churches and pension funds, to divest away from fossil fuels will continue to mount globally. Already Harvard and Yale in the US and the
University of Manchester in the UK are under pressure from students to divest, and we expect more protests and walkouts frequenting universities next year.
As the divestment movement gains traction, stakeholders calling for divestment will no longer be the exception, but the norm. Consequently, more organizations will announce plans to divest in
2020.
2. Stranded asset risk will influence investor decisions.
We also expect more individual investors to move their money into fossil free funds. The motivation for this transfer will be two fold.
Firstly, the number of Canadians concerned about climate change is rapidly increasing, with recent polls showing that the number one concern among Canadians is climate change. Canadians will therefore increasingly align their investment strategies with their personal values.
Secondly, concerns will grow among investors about the energy sector’s volatility and the potential risk of stranded assets, a situation in which assets such as oil no longer have value due to changes in societal habits, markets or technology, and how this will impact the returns of these investments. Canadians that prioritize financial returns above all else will also be motivated to move their money away from fossil fuel industries.
Furthermore, our 2019 Divestment Report, based on over twenty years of data and six years’ worth of live fossil-free investment data, proves that divesting pays. Investors who divested from fossil fuels from May 2013 to July 2019, using Genus Capital’s Fossil Free CanGlobe Equity Fund, generated a 12.83 per cent annualized return (gross of fees and net of expenses) without contributing to the climate crisis. The fund outperformed the returns of its benchmark and the overall Canadian stock market index. Divesting is not just a moral imperative, but an economically sensible decision.
3. Pressure will mount for equity disclosure
Earlier this year, 99 investors that represent more than $1.61tn in assets under management, asked companies to increase the transparency of information on workplace equity, including gender, race and ethnicity.
These 99 investors argue that workforce diversity is a material concern. Research by McKinsey has proven that diversity increases the likelihood of returns, stronger than the industry medians.
For example, business teams outperform on sales when gender representation is equal.
To date, the representation of women on boards has been a hot topic, but the transparency of workplace equity overall has not.
In 2020, we expect more businesses to make the data on their workplace diversity accessible, and we predict this data will influence investor decisions with the most diverse companies being more attractive to investors.
4. The impact investment movement will grow
The number of Impact Investors in Canada will grow, meaning those investors who not only screen potentially harmful industries (such as tobacco, arms, fossil fuels, etc.), but proactively invest in organizations that are providing solutions to some of the world’s biggest problems.
Impact investors will increasingly link their impact to the 17 UN Sustainable Development Goals , which outline some of the most pressing issues of our time. For example, an investor who cares about affordable and clean energy may choose to invest in an organization such as CoPower, which is financing renewable energy and energy efficiency projects. Alternatively, an investor concerned about improving health and wellness may opt to support innovative healthtech companies.
The acceleration of Impact Investing will be seen in 2020, and will continue for years to come, as the Millennial generation - known for being more socially conscious than previous generations - build and acquire more wealth.
Final word
Overall, we expect to see a shift in investor attitudes over the next year, with concerns for the environment and society becoming increasingly important.
While investors will naturally still care about the financial returns of their decisions, it will not come at the cost of aligning investment choices with personal values - and nor should it. As research has now shown, investors can align portfolios with their own values, while still achieving returns consistent with traditional portfolios.
