Sustainability Digital – March 2021
Impact in public markets
Sustainability Digital – March 2021
Climate the No.1 priority for 2021
Climate is by far the number one sustainability priority for investors in 2021 according to a poll of asset owners from more than 32 countries which came together for the Top1000funds.com online Sustainability event in March.
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Engaging with Investors on ESG Issues
Bond issuers—including sovereigns, who represent 50 percent of the fixed income asset class—are faced with increasing scrutiny on environmental, social, and governance (ESG) issues from investors. Forums organized by the World Bank Treasury to promote dialogue between institutional investors and sovereign bond issuers have highlighted the challenges sovereign issuers face in engaging with investors on ESG topics and in communicating ESG-related information that investors consider financially material to their portfolios. This document provides examples, best practices, and action plans that can help debt managers enhance their capacity to engage with investors incorporating ESG information in investment decisions.
Portfolio Engineering
For decades, we have engineered scalable portfolios to help institutional investors achieve their goals. In the past, these goals have typically been financial (eg. return and risk targets), but now many investors are also seeking to achieve environmental and social impacts through their portfolios. We believe the best way to achieve both financial investment goals and these impact goals is through portfolio engineering that incorporates these objectives holistically, beginning with crisply defining an investor's goals, systematically looking across a variety of asset classes to find assets that are aligned with these goals, and then combining those assets to create a portfolio that is designed to achieve a high ratio of return to risk.
New Policy Concensus
We are now at a turning point, with Democrats controlling both legislative chambers and the presidency, and an emerging concensus among Democratic policy makers and their advisors that enables fiscal spending that is both significant in size and ambitious in scope. Later this year, we expect to see the first expansionary fiscal package centered around the pursuing long-term social, environmental, and competitiveness policy goals (following the more immediate COVID recovery package). In these Observations, we explore two key shifts in Democrats' thinking underlying these policy proposals, which we expect will be sustained well beyond this fiscal package.
Social Conditions Consideration
The ultimate goal of economic policy is simple and timeless - to ensure prosperity and maximise living standards. Broad macroeconomic measures such as GDP growth, the unemployment rate, and inflation had for decades been a good proxy of rising prosperity, so they have dominated economic policy making and are enshrined in most central bank mandates. But even before the COVID-19 crisis, it had become clear that traditional economic measures have increasingly diverged from social outcomes.
Secular Supply and Demand
Over the past two decades, China's secular rise dominated commodity markets, as its industrialization required a massive amount of raw materials to build up the country. As we consider the future, we see many reasons to be bullish on commodities tactically, but one of the most important secular factors will likely support industrial commodity demand for years to come: the shift in global economies away from fossil fuels and toward greener energy.
Diversity Impact Score
Throughout its history, the U.S. domestic Asset Management Industry, projected by PwC to grow to $71.2 trillion in assets under management by 20251, has exhibited an empirical lack of diversity with respect to gender and ethnicity within its ranks. Numerous studies have shown that Women and People of Color (“POC”) are underrepresented in the Industry, including a 2019 study commissioned by the Knight Foundation finding that Asset Management firms owned substantially or majority-owned by Women or POC managed only 1.3% of the Industry’s total assets under management.
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