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When it comes to sustainable investment, the market has clearly moved from the ‘why’ to the ‘why not?’. A record $650bn poured into ESG-focused funds globally last year, with ESG funds now accounting for 10% of worldwide fund assets. ESG assets under management are now expected to reach $50trn by 2025.
As we look ahead towards a lower carbon future, we understand that decarbonising our investment portfolios will be a vital component of the transition. However, for investors to enact meaningful change, it is crucial we reach beyond exclusion.
In our view, it is not enough to cherry-pick sustainable companies, we have to influence the behaviour of those with poorer sustainability performance – such as heavy carbon emitters in the mining sector. Active ownership – using both engagement and voting to influence companies – continues to be paramount.
Positively impacting ‘dirty’ companies
Copper, for example, is an essential metal for the clean energy transition. Copper is critical for solar panels, wind turbines, electric vehicles and battery storage – while it is widely employed in the manufacture of electric cables and wires, plumbing, and other electronic equipment.
As record quantities of copper will need to be mined in order to enable the large-scale decarbonisation of the global economy in the years ahead, ESG investors can positively impact the sustainability characteristics of companies operating in this space.
For example, we recently followed up with Antofagasta, one of the largest copper producers in the world, to continue dialogue on its efforts to reduce greenhouse gas emissions – particularly as the company has announced it is adopting new, longer-term carbon reduction targets and strategies. As Antofagasta has recently entered the bond market, we also had an exploratory dialogue around the relevance of green or sustainability-linked bond structures for future issuances.
Antofagasta informed us it will shortly be releasing reporting in line with Task Force on Climate-Related Financial Disclosures (TCFD) recommendations, which will highlight how its operations are aligned with various climate scenarios. We also remain in dialogue about its ongoing climate strategy and will continue to press on its decarbonisation progress. Overall, the advancements Antofagasta has made in relation to climate risks and other ESG elements recently led us to upgrade our internal ESG score on the company from B+ to A.
Encouraging steps forward in Brazil
Engagement is also a powerful tool when seeking to enact change at government level. For example, we at Nordea are part of an investor coalition that is talking to the government of Brazil about taking a tougher stance on deforestation and environmental protection.
In our view, biodiversity loss is a systemic risk and one of the biggest global challenges of our time. Nature is being eroded at rates unprecedented in human history and we are facing the irreversible loss of plant and animal species, habitats and vital crops. Research by the World Economic Forum (WEF) found $44trn of economic value generation – more than half of the world’s total GDP – is moderately or highly dependent on nature and its services. At the same time, the WEF estimates that nature-positive transitions could generate up to $10.1 trillion in annual business value and create 395 million jobs by 2030.
While we have been concerned about Brazil’s climate policy for some time, our efforts to engage with public agencies and industry associations on this issue has begun to show signs of promise. For example, the wide-ranging regulations on ESG announced by the Central Bank of Brazil late last year is a good step forward. The new regulation includes the requirement that all environmental, social and climate impact is taken into consideration for all financial services and products. Even though the accelerating climate crisis remains concerning, there are many reasons for optimism for the remainder of 2022 and beyond. Our world is waking up, and investors are getting active