The Future of Asset Management: What is Sustainable Investment & How is it Changing the Corporate Landscape?
In the last decade, the issue of sustainability has become a major talking point across the corporate world. This is no different in the Financial Services, where there is an increasing focus on sustainability. But what really is sustainable investing, and what does a career in this area entail?
What is Sustainable Investment?
Sustainability means meeting the needs of today without compromising the needs of tomorrow. In Asset Management, Sustainable Investment is a complex idea given the interconnected nature of the global economy.
Sustainable investing is defined by Investopedia as “an investing philosophy wherein an investor takes a company’s environmental, social, and corporate governance (ESG) factors into account. This allows investment dollars to be used as a tool to promote positive societal impact and corporate responsibility without sacrificing long-term financial returns”. In summary, it is a way of ensuring that investment portfolios generate returns without any major social or environmental drawbacks.
ESG Investment stands for, as defined by McKinsey: “E” for Environment, looking at the energy a company “takes in and the waste it discharges, the resources it needs, and the consequences for living beings as a result. Not least, E encompasses carbon emissions and climate change”; “S” for Social, focusing on how “every company operates within a broader, diverse society”, which includes “labor relations and diversity and inclusion”; and “G” for Governance, referring to the “internal system of practices, controls, and procedures [a] company adopts in order to govern itself, make effective decisions, comply with the law, and meet the needs of external stakeholders”.
ESG investing can be achieved in several ways e.g., through fixed income investment or the buying and selling of stocks. A great example of Sustainable Investment within the fixed income sphere is a “Green Bond”, a bond issued by a firm with in which the proceeds will be applied towards ‘green’ projects. In Equity Markets, Sustainable Investment may be conducted through buying shares in companies who have proven themselves to be actively enhancing ESG performance, environmentally or socially, as well as moving away from buying shares in companies with a poor human rights record.
What does a Career in Sustainable Investment Look Like?
Trailblazing add-victor alumnus, veteran Sam Tripuraneni has transitioned into Sustainable Investments after serving in the British Army for eight years, rising to the rank of Captain. He is now Head of Sustainable Outcomes at Aviva Investors. Within his team, he has three pillars: Climate, Natural Capital and Social, all dealing with understanding the double materiality of these sustainable themes – financial materiality and impact materiality. However, as well as trying to make a difference on a macro level, through aspects such as reducing carbon emissions, he is also keen to make differences on a micro level. “We shouldn’t forget the micro impact that everyone can have on a daily basis”, Sam says. “Being a good manager, building a good portfolio for your clients, all these little things over time are a big positive”.
Why is Sustainable Investment Appealing to add-victor Applicants?
In a sector where processes and asset classes have remained unchanged for some time, Sustainable Investment has given asset management a new lease of life. “People have been doing equity investing for a long time and there has been little change in terms of process or product development”, Sam says. “Whereas, here, it’s all relatively new. The data, the regulations, the client demand and consequently product development has grown at a pace no one could have predicted five years ago.” As a new standard for investing, those involved in Sustainable Investment have great scope for innovation and setting the agenda for something that’s going to be at the centre of Financial Services for decades to come.
Although relatively nascent Sustainable Investment is already incredibly popular. Bloomberg is forecasting by 2025, it will be worth over $50 trillion, “representing more than a third of the $140.5 trillion in projected total assets under management”. With the market consensus shifting towards investing sustainably, the value of the market is only going to continue to grow.
Beyond being fast-growing and profitable, Sustainable Investment can be easily aligned to one’s own personal beliefs and purposes. With the significant enthusiasm to make the world a more equitable place, candidates can look at Sustainable Investing as a way of doing this - contributing to help the world to achieve the UN’s Sustainable Development Goals. In 2015, all member states of the UN agreed to sign up to the 2030 Agenda for Sustainable Development, containing 17 Goals which nations should strive towards achieving. These range from gender equality to economic growth to more affordable and cleaner energy. In helping to shift investment into more sustainable assets, as well as helping assets with a poor track record offset previous damage done to the environment, you can play a pivotal role in helping the UN achieve their goals.
Advice for Entering this Sub-Sector
Our industry experts have the following tips for any applicant looking to go into this sector:
- Make sure you understand asset management: Sustainable Investment is still (although growing) a part of a huge industry. A knowledge of sustainability is good, but you also need both knowledge and an interest in how the markets work and how to ensure that your clients have strong portfolios which return capital.
- Make sure you know what’s what in sustainability: Having said that, an understanding of what sustainability means is pivotal to succeed in this sector. Experts suggest picking one specific part of ESG (e.g., green bonds) and developing a specialist awareness of that smaller field.
- Work hard and want to learn: Sam says “Ultimately, everything else is “do people want to learn and work hard?” It doesn’t matter if you’re military or sport, or neither of these things, that’s important regardless of their background. When you find these people, it’s dynamite”.