Moving into the mainstream: Will sustainable investment become the new normal?

In the first half of 2020, when COVID-19 forced economies to shut down, the global CO2 emissions fell by 9%, according to the “Global Risks Report 2021” of the World Economic Forum. A striking number, but in order to limit global warming to 1.5°C (as agreed on by 195 countries in the Paris Agreement), a decrease in emissions at that scale is required every year of the upcoming decade.

History tells us that emissions tend to bounce back quickly (like after the Financial Crisis 2008-2009). Failing to reach the 1.5°C goal will not only lead to harsh consequences for societies and eco-systems, but furthermore pose significant risks for investors. The Cambridge Institute for Sustainable Leadership found that substantial climate related losses in portfolio value could already show in timescales that are relevant to all investors, not only long-term investors.

There is a growing consensus among leading investors that we are moving towards a low carbon economy, and it seems unlikely that the motor of economic growth will continue to be predominantly powered by fossil fuels. In fact, according to recent reports, the industry has reached a turning point, where ESG (Environmental, Social, and Corporate Governance) and non-ESG products begin to converge, and fund providers find it increasingly more difficult to sell non-ESG funds. European ESG assets could reach up between 41% and 57% of total European mutual fund assets by 2025 (up from just 15.1% as of the end of 2019).

A fundamental change is on it’s way. Over a period from 2010 to 2019 ESG aligned funds already cumulatively outperformed traditional funds by 9%, with different analysis showing that close to 60% of sustainable funds delivered higher returns than non sustainable funds.  

With the Covid-19 pandemic, there has been increased concern that ESG issues would be set aside, but the resilience of ESG funds has been demonstrated even further, proving that investing in sustainable funds doesn’t come at cost, but can future-proof investments and boost returns. 88 percent of sustainable funds outperformed their non sustainable counterparts in the period of January 1 to April 30, 2020, shows a report of Blackrock, the world’s largest asset manager.  

There is a fast increasing interest in sustainable investment, with a clear impact on the industry. With companies being put “on watch” by investors for failing to take climate risks fully into account, management’s risk being voted against at future shareholder meetings if climate risks are not addressed. Investor demand is surging, and leaving the industry with little to no choice but to become part of the change. Capital is allocated in a sustainable manner and more and more investors are turning to ESG. In 2019 flows into European ESG products represented 19,8% of their total AUM (in comparison to non-ESG funds accounting for 3,8% of AUM)

While a majority of the European institutional investors are acting ESG-oriented, it is especially the nordic countries that constantly put Europe at the forefront of ESG investment. Norway is about to emerge as one of the world’s largest investors in unlisted renewable energy infrastructure within the next few years. At the same time, oil, gas and coal corporations are facing an accelerating divestment process, with Danish and Swedish pension funds following the Norwegian strategy. It is crucial that asset owners address climate related financial risk, while safeguarding the assets and pensions of future generations. 77% of institutional investors are planning to completely halt purchasing non-ESG products by 2022, contrasting only 14% of fund providers that plan to stop offering non-ESG products by the same year.

While the retail investor segment is still lagging behind institutional, it is quickly gaining traction. With the Millenials entering the space and an increased public awareness of risks that are ESG related, investing for meaningful impact will be the core portfolio for many investors. Being at the receiving end of 41 trillion USD in intergenerational wealth transfer, Millennials rank impact performance as their primary investment criteria, ahead of return (according to a survey by the World Economic Forum).  

Individuals as well as institutions are looking to their financial planners to advise on, and to the financial services industry to supply financial products and strategies that align with their  broader goals. Over the last few years a whole new set of client demands emerged, and many firms have been able to provide solutions and lead the green revolution.

The Money 4 Change – Impact Awards

To support and bring recognition to best practices, Mercer and Institutional Money have initiated The Money 4 Change – Impact Awards. Presented in four categories, the awards will highlight Asset Owners, Corporates, Entrepreneurs and Collaboration.

Today, we invite Asset Owners who already have an increased focus/adjustment to SDGs and/or are making increased investments in the area of Social/Climate Impact and/or take climate risks into account in the decision-making process to apply until April 16, 2021 here.

To be eligible for application Asset Owners must have:

  • Created an alignment with the SDGs (the 17 Sustainable Development Goals set by the United Nations) – having max. 3 SDGs in focus
  • Implemented innovative ideas to solve climate/social problems and challenges
  • Developed and shaped an impact strategy or process
  • A (measurable) sustainable and positive impact on the SDGs

The minimum requirement for Asset Owners is a Membership of UNPRI and/or UNGC (or planned membership until May 30, 2021 or nomination of an existing member of UNPRI/UNGC to submit the award). 

In April 2021, a short list of twelve finalists – three per category – will be disclosed. The final winners will be announced at the gala evening during the „Institutional Money Congress“ in Wiesbaden on May 26, 2021.

In addition, the winners are going to present their solutions at the Impact Days, an annual community gathering of professionals interested in mainstreaming impact. Held on this year in Vienna, 400 professionals working in innovation, entrepreneurship, and investment for impact across Europe are looking at what already works, and what still needs to be done for the transition towards the impact economy.


Find out more about the awards, the jury and the application process here.

Dominik Pernat