Altiorem is an online library and resource centre dedicated to facilitating, promoting and influencing the investment and broader finance industry towards long-term, sustainable and purposeful allocation of capital.
Launched in April 2020, Altiorem provides its community of users free and open access to a wealth of information which will users build the ethical, business, investment and economic case for sustainable finance and implement the changes needed to make it a reality.
There are some fantastic organisations and individuals who are producing valuable research in sustainable finance. Altiorem summarises and curates this research to assist those who want to build the case for sustainability in finance.
This week’s ‘research in the spotlight’ is from the World Resources Institute (WRI).
Overview
This paper informs asset owners about the current state of sustainable investing for US institutional investors. Drawing on the experiences of over 100 asset owners and investment professionals as well as evidence from WRI’s own $40 million endowment the paper constructs a detailed outline of sustainable investing.
The underlying motives and drivers, governance structures, relevant data and standards, investment vehicles, and key barriers that shape opportunities for implementation are examined. While this paper tilts toward the perspective of foundations and endowments, it ultimately seeks to inform all long-term investors that are contemplating sustainable investing.
Section I
This section sets the context and highlights evidence for the rise in sustainable investing. Several factors suggest that sustainable investment is not a passing fad. These include:
- persistent pressure from social movements like the fossil fuel divestment campaign;
- interest from increasingly sustainability-minded investment decision-makers like millennials and women;
- a growing body of evidence on materiality;
- new enabling government policies;
- the global recognition of the challenge of addressing climate change as evidenced by the Paris Agreement; and
- the fast rate of new sustainability products entering the market.
Section II
This section explores the drivers, governance structures and investment products which are shaping the sustainable investment landscape in the context of US-based institutional asset owners. Multiple forces drive institutional investors toward sustainable investing. Their motivations, generally grounded in broader social and economic shifts, fall into four main categories:
1. a perception and growing evidence of ESG materiality;
2. changing policy and regulation;
3. the desire for mission alignment; and
4. momentum from the fossil fuel divestment movement.
Section III
Finally, this section outlines the barriers and management strategies for implementing and mainstreaming sustainable investing practices. The research found that market-level and internal barriers hinder asset owners engagement with sustainable investing. Internal barriers typically appear at the early stages of engagement with sustainable investing. These barriers include inertia in the status quo, limited frameworks for action, inadequate data and disclosure and gaps in the investment chain.
Four tools to overcome these early barriers:
- Knowledge and capacity building to equip internal champions. An internal champion, equipped with this knowledge, can provide coherency and leadership to an uncertain process.
- Strategic delegation to form a special committee. A separate committee will allow time and resources needed to cultivate a shared understanding of the relevant issues and to devise the broad approach for the institution’s strategy.
- External engagement to communicate with consultants, managers, and peer asset owners. Asset owners can also use these conversations to encourage managers and consultants to improve their sustainable investment practices or offerings.
- Portfolio experimentation. Before making grand commitments across a portfolio, asset owners can consider exploring the investment landscape by investing a portion of the listed equities allocation into sustainable investment funds.
The Altiorem library will link research with the four cases for sustainable finance and capture key information. This report from WRI can help you to make the case for sustainable finance, particularly the ethical, business and economic case.
