Sustainable investments are becoming increasingly popular, but are still a niche. However, given climate change, investment funds are considering how to push the switch to "clean" investments.
Davos (dpa) - No weapons, no tobacco, no coal - sustainable investments are becoming increasingly popular. An important investment advisor is now relying on the concentrated power of investment funds to further increase the pressure on companies that still offer "dirty" products.
"We want to build a community of like-minded investors," said Rich Nuzum, chief investment advisor for major clients at Mercer, the German press agency.
If a fund alone withdraws from unsustainable investments, nothing will change. "But if enough funds participate, if the standard indices, for example, reduce investments in coal or withdraw from military investments, from weapons, then the cost of capital for these companies would increase," said Nuzum on the sidelines of the annual conference of the World Economic Forum in Davos.
As a result, companies would have to charge higher prices or lower wages. The operational business will be more difficult, said Nuzum. As an example, he referred to funds that, in the late 1980s and early 1990s, had foregone company shares from this country due to the apartheid policy in South Africa. "Ultimately, the economy was hit and the policy changed," said Nuzum.
Billion dollar sovereign wealth funds play an important role in sustainable investments, something from Norway, said the consultant. "By making an investment, a sovereign wealth fund triggers innovations that reduce the costs of a gradual change to a low-carbon economy and makes it more likely and faster." Funds from countries that depend on oil and gas revenues would have to invest in sustainable investments. It is not just about diversification, but also about minimizing the risk of a price for carbon, says Nuzum.
The investment expert also expects help from governments. "For example, security regulators could require companies to report carbon emissions, labor practices, or water use," he said. "More uniformity would really help." Countries with great market power such as the USA or China are particularly in demand, but individual regions such as the US state of California could also make a difference. "If California, for example, increases its emissions standards above the US norm, it will have an impact because car manufacturers will not want to do without this market."
However, it is important for investment funds to create an index with index providers that sets clear criteria, said Nuzum. For this, important questions have to be clarified. When would a company be a weapon manufacturer - when weapons made up 5, 10 or 50 percent of sales? Do you aim at the end manufacturer or also at the supplier?
Coal is even more difficult. An immediate exit is complicated here, it will take another 20 to 30 years. Rather, it is possible to reward companies that try to burn coal as cleanly as possible. "If you reward good intentions in a dirty sector and follow other companies, you might do more for emissions," said Nuzum. "Yes, you invest in coal, but create incentives for the coal sector to be cleaner that could help with emissions. The devil is in the details."
Sustainable investments are becoming increasingly popular in Germany. According to the BVI fund association, the assets under management in sustainable retail funds in which private and professional investors can invest have more than doubled within five years: from 15 billion euros at the end of September 2014 to 31 billion euros in autumn 2019 Billions of euros in open special funds purely for large investors. So far, however, sustainable funds have been a niche: measured by total assets in retail funds of EUR 1.079 trillion at the end of September, they had a market share of around 3 percent.
Politicians are also putting pressure on them. For example, the EU wants to reduce greenhouse gas emissions in the EU by 40 percent by 2030 compared to 1990. According to estimates, around 180 billion euros would have to be invested in a climate-friendly manner each year. According to EU plans, bank advisors could already be obliged in 2021 to ask savers whether they want to invest their money sustainably. Mandatory indications of possible climate impacts of investments are also discussed.