Environmental Finance's inaugural Green Equities conference, held in partnership with the City of London's Green Finance Initiative, hosted more than 200 delegates at London's Guildhall to discuss the issues that are shaping the future of sustainable investing
John McKinley, director of BlackRock Impact, the impact investing arm of the world's largest asset manager, explained how data scientists in the firm's "scientific active equity" team concluded that a company which produces more revenue than competitors while generating less carbon or consuming less water is "a fundamentally stronger company", and thus a better investment opportunity.
"We found greater operational efficiencies an indicator of management excellence at that company," McKinley said. "With small tweaks you can have a very big impact."
Speaking on the opening panel, titled 'Driving green growth', McKinley also revealed that BlackRock Impact, when "looking at the MSCI World index, working within 30 basis points of tracking error, we found we could reduce carbon exposure by up to 75%, enabling mainstream investors to maintain a very similar risk-return ratio that they're comfortable with and demonstrably reducing their overall carbon exposure.
"There are more opportunities today than ever before to effectively implement climate awareness across your portfolio," he added.
David Harris, head of sustainable finance at London Stock Exchange Group (LSEG), pointed to a survey the group conducted of 250 asset owners with at least £10 billion ($13.6 billion), and found 57% were interested in incorporating environmental, social and governance (ESG) criteria in 'smart beta' indexes, or alternative index constructions.
"There's a massive change [in thinking], which is very exciting," Harris said.
Ian Simm, chief executive of UK-based Impax Asset Management, said the work of the TCFD, and its calls for greater disclosure, is likely to be the "start of the reversal process" of carbon risk not effectively being priced into portfolios. He said the situation is unlikely to remain an issue for much longer.
Russell Picot's keynote speech on the progress made by the TCFD, for which he is a special advisor, spoke of how its final report, released in June, looks at both the risks and opportunities posed by climate change, and said it is drafted in a way that is "sympathetic" to companies, in that it allows them to tell their own story through their disclosures.
"Climate risk is present in every investment portfolio I can think of," he added.
The conference split into two streams in the mid-morning, dedicated to listed and private equity, respectively. The former included discussions on low-carbon indexes, measuring impact in green equities and the progress of investor-led initiatives.
The private equity stream discussed opportunities in emerging markets, assessing the sustainability of investments.
Leon Kamhi, head of responsibility at Hermes Investment Management, delivered a keynote speech on investor engagement. He cited the asset manager's engagement with Anglo American, one of the world's largest mining companies, which resulted in the company "taking the initiative", he said, and developing a set of targets that includes carbon neutrality by 2050.
Kamhi said that where a lot of people see engagement as combative, in many situations this is not the case: often the company wants to be progressive on climate-related issues, but in many cases it's fund managers that are resistant.
To address this, the industry must present the financial case for responsible investment more clearly, in order to support these types of companies, he said.
