ImpactAlpha, Aug. 21 – A corporate shift away from “shareholder primacy” towards an alignment with a broader set of “stakeholders” is number one on Anuj Shah’s emerging trends in sustainable investing. Check. (See, “Stakeholder primacy”). Also on the KKS advisor’s top 10: A market has developed for sustainability-linked loans. Environmental, social and governance, or ESG, engagement is making asset managers more valuable. Private equity sees the long-term value in sustainability.
“It’s hard to know exactly how a tipping point is measured,” writes Shah. “But we boldly posit that we’re past it.” Among the trends:
- Incentivizing sustainability. ING made one of the first loans tying a borrower’s interest rate to improvements in ESG targets in 2017. Last year, more than $38 billion in sustainability-linked loans were issued (see, “An incentive for companies that deliver on sustainability: lower-cost capital”). With the lower-cost of capital thesis being proven in the market, says Shah, a rush is on among corporates to understand and improve their ESG scores.
- Data helped the market tip. Investors are moving past simply consuming ESG data at face value and to better understanding the interplay between ESG data and other data sets, including econometric, political risk and social media. “The biggest driver of the changes we’ve experienced over the past decade is the availability of data,” says Shah.
- From specific to general. Many sustainable and impact investing products have been focused on one or a few sectors or themes (microfinance, aquaculture, or green energy, for example). “We’ve recently noticed a shift to a broader or more macro view of impact, with funds emerging around central themes that are more focused on mega trends or reacting to the impacts of a world in flux,” says Shah. The challenge: impact measurement and management becomes more complex, but framework’s like the IFC operating principles are driving a common discipline (see, “Core characteristics and operating principles to help impact investing scale with integrity”).