Increased client demand for sustainable investment options is forcing firms to rethink their investment offerings and advisors to rethink their approach, according to Genus Capital’s Mike Thiessen.
The numbers back up Thiessen’s beliefs. 2017 was a record year for green bonds issuance ($110bn) with corporations and countries including Apple and the Bank of China issuing their own green bonds.
“2017 was an interesting year for the divestment and sustainable movement; there was a lot of progress made with renewables and divestment by financial institutions,” said Thiessen, who is manager of sustainable research at Genus. “But, at the same time, there were also setbacks, particularly with Trump pulling out of the Paris Agreement and cutting funding for renewable energy sources.”
2017 also saw major firms and institutions commit to divestment strategies. Laval University became the first Canadian university to divest from fossil fuels and the world's largest fund – the Norges Sovereign Wealth Fund – vowed to divest approximately $40bn out of oil companies.
“Other banks and insurance companies also said they plan to divest from coal or oil sands, and I think we will see more of this 2018 as financial institutions decide they don’t want to be associated with climate risks or contributing to climate change,” Thiessen said “Clients in most parts of the world also don’t want to be a part of anything that contributes to climate change.”
Thiessen believes one of the major trends of 2018 will be the rise of shareholder activism around social and environmental issues. Shareholders of Apple recently urged the company to commit to studying the impact of smartphones on children. The company was criticized by shareholders for not having disclosures about the developmental effects of screen time on children.
“Social issues like this are becoming a bigger deal for investors. They realize that some of the behaviours of these companies are against their values,” Thiessen said. “Large asset managers like BlackRock and Vanguard are starting to step it up and vote for some of these proposals for environmental issues, and I think they will continue to do that in 2018.”
Thiessen encourages advisors to get a clear picture of their clients’ values and principles. “Then, advisors need to find ways to help clients invest with those values,” he said. “Look at ways to divest from industries the client doesn’t like, but also research how to invest the money coming back from the divestment. Clients seeking out investments that match their values is only going to become a bigger trend.”
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