In the Press / 02.07.2017
How are you going to play the energy transformation? asks ImpactAlpha editor and CEO, David Bank, in his latest exposé on trending investment behavior.
Skim the abridged excerpt-cum-synopsis below, or read the full article on ImpactAlpha.
This is no longer just about values-driven investing, important as that is for pointing our money toward the kind of future we are hoping to live in. Values, however, are a weak lever to pull. Pension and sovereign wealth funds, are not much interested in aspirational, wishful thinking or, even worse, do-gooder advocacy.
Such big asset owners – those with assets of, say, more than $100 billion or so – are so broadly diversified that they are called “universal owners.” Effectively they “own the market.” Forces that affect the market, up or down, will inevitably hit their portfolios. Unlike a day trader, they can’t just make bets on individuals winners and losers. And they can’t duck the coming dislocations. Social unrest, political instability, environmental catastrophes, wars – “owning the world” means institutional asset owners have a stake in its viability. In economic terms, there are no “externalities,” positive or negative.
Their first move is to hedge…
For a select few gi-normous funds, such hedging is increasingly not sufficient. They are making a more active bet on the future, that the world is going to make progress on climate action (or income equality or sustainable development more broadly) and they want not only protection from the downside but exposure to the upside…
How many make that bet depends on the common perception about where the world is going. Optimism about the future can become self-fulfilling and, conversely, a pullback from globally-agreed goals could chill investment. That’s why climate pessimists might look at the election of President Trump and his appointments and conclude that global progress around the Paris agreement will stall and energy trends will reverse.
Impact investor confidence “has taken a hit,” says Matthew Weatherley-White, manager director of Caprock, a $3 billion asset manager based in Boise, Idaho and New York. “A lot of impact investors feel disheartened by statements from the White House on climate and sustainability, and that has shifted from optimism to pessimism.
“But it was always was going to be a lumpy transition and take a long time,” Weatherley-White says. “All we’re seeing is the manifestation of that lumpiness. It’s going to be a long transition. But the transition itself is inevitable.”