In November 2023, the financial press quietly reported outflows of 6.8% for commodities. As you’d expect, there was very little market noise. Investors naturally understand that markets ebb and flow, indeed many profit from it.
By contrast, when ESG (environmental, social, governance) net outflows declined by just 0.1% a month later, the Armageddon titles came swinging into full force from some publications. We were bombarded with reports of ‘Historic blows’, ‘Bleak pictures’, and even ‘the latest nail in the coffin’. For a perfectly normal -0.1%.
It’s progress-blocking in action. One day, our great grandchildren will find these articles as bemusing as we find the archaic ’Votes for women, NEVER!’ pamphlets that were distributed over a century ago. Headlines like these simply will flutter into the wrong side of history where they belong.
Even if alarmist headlines, powerful conglomerates and so-called ‘anti-woke’ politicians manage to cast doubt, they can never prevent progress. The momentum is already too strong. 84% of consumers today will abandon a brand with poor environmental practices, with the sentiment rising each year as eco-anxiety spreads. And sustainable products grow 2.7 times faster than others. Court cases around climate change have also more than doubled in just five years.
Regulators have already taken note. The rules around carbon emissions, greenwashing and transition plans are coming thick and fast. With the EU leading the way. The EU Taxonomy, SFDR and Carbon Market regulations are already being replicated around the world at pace. At Triodos, we are campaigning for traditional investments to be held to the same strict standards as sustainable assets.
The direction of travel is unmistakable, the train already left the station. What’s more, consumers and investors are driving it.
As a sustainable investment manager myself, I draw strength from the sometimes brazen arguments against ESG, sustainable and impact investing. Resistance is a normal part of change, and counterarguments make you aware of how others perceive things. They compel us to better articulate why we believe the financial sector should look at the ‘true return’ of their investment and replace their risk-return lens with an impact-risk-return lens when looking at investments.
At Triodos Investment Management, we’ve been investing in profitable green and sustainable projects since the mid-1980s. Because it works. Our investment approach has survived four major recessions and 65 interest rate hikes. Despite the doomsday predictions (which were around in the 80s too), we’re still here, and continuing to grow and deliver solid financial returns.
Equally as important as positive financial returns are the environmental and societal returns. This, after all, is what sets sustainable – and especially impact – investors apart from the crowd. To my mind, there is no point in investing money if we don’t use it to improve what needs to be improved. To shed a light (literally) on one of my favourite impact investments, in 2023 we financed WeLight that builds solar mini-grids in Madagascar. Bringing clean electricity to 45,000 families and businesses for the first time did so much good in terms of the local economy, education and esteem, it’s hard to overemphasize.
Wherever you find progress, you’ll also find the people (now on the wrong side of history) who tried to block it. Over a century ago, it was the anti-suffragists. A few hundred years previously, it was the anti-abolitionists. From whale oil in the 1800s to the climate crisis today, there will always be someone standing in the way – usually very loudly - trying to prevent meaningful change.
But let’s not forget that these loud and critical voices play a crucial role in the process of improvement and institutional change. By listening to diverse viewpoints and considering alternative perspectives, we can identify areas for improvement and make necessary adjustments. For example, because of the increasing EU regulation on sustainability we have further refined our processes and added new data points. Which makes it easier for investors to compare investment funds.
My message to sustainable investors is to stand strong and to persevere. Like an oak tree against the wind. There’s no doubt in my mind that the noisemakers will continue to sensationalise every market dip for their own agendas. But we are in it for the long haul. It’s been over 35 years already. We follow our hearts as well as our head, looking for profit with purpose and never letting go of our vision.
Ignore the noise. Impact investing is on the right side of history.
