“We believe that sustainability should be our new standard for investing.” This was written in bold characters in the latest letter from Larry Fink to BlackRock’s clients. It would be easy to dismiss these words as just an attempt to liberate the firm from its image as a sustainability laggard. And yet it reflects a profound shift in the industry regarding attitudes towards sustainability: ESG is no longer a question of ‘if’, but one of ‘how’.
Integration of ESG factors into the investment process can take place in very diverse ways. But the question around ‘how’ is not just a question for investment teams, ESG rating agencies and standard-setting bodies. The shift towards sustainability highlights the need for new thinking regarding the way asset managers explain their products to clients – including their social and environmental impact. Financial intermediaries are set to play a critical role, due to their place in the value chain.
There is much more to ESG than reputational risk. As investors become aware of the challenges the world will be facing in the next decades, they are slowly re-defining their perceptions about investments. Initiatives like the UN’s Sustainable Development Goals (SDGs) are helping investors see that they have a positive role to play – and that integrating ESG might be the best way to secure financial returns.
What are the implications of this shift for intermediaries across the UK and continental Europe? What are the specific ‘transition risks’ (and opportunities) they are facing?
We will be exploring these questions in our ESG report this year – please get in touch if you’d like to share your views.