“Sustainability is at risk of becoming a meaningless buzzword,” Minerd said, “if we don’t consider the ability to generate long-term, stable returns.”
Minerd was joined by Anne Finucane, Vice Chairman of Bank of America, Vicki Fuller, Chief Investment Officer of New York State Common Retirement Fund, Clifton Robbins, Founder and CEO of Blue Harbour Group, Markus Voigt, Managing Partner and Founder of AREAM Group, and moderator Susan Mac Cormac of Morrison & Foerster. The panel addressed the evolving approach to sustainable investing in a world where adherence to the principles of ESG—best practices in environmental, social, governance—is becoming increasingly commonplace. Panelists described how their organizations have incorporated sustainable investing into every stage of their investment process, and how it has emerged as a leading differentiator for their firms. “Three years ago, if I met with 50 of our shareholders, not one asked about ESG,” said Finucane. “Today, virtually all of them do.”
Not only is sentiment changing, but the investment proposition has evolved over time. As Minerd said, “Efficiencies and economics will ultimately drive change to sustainable technologies.” Indeed, Voigt said that when he began investing in solar technologies 13 years ago, it cost 10 million euros per megawatt of storage capacity. Today, it is down to 600,000 euros per megawatt. Minerd added that the risk/return profile of global infrastructure projects that are available in the market today will meet the investment requirements of institutional investors.
Firms are responding in a number of ways. First, investment firms and allocators of capital are dedicating larger segments of their resources to sustainable projects and companies that adhere to ESG goals. Fuller summed up the fiduciary position of institutional investors with regard to sustainability. “In our quest to generate returns for current beneficiaries, we do not want to sacrifice returns for future beneficiaries.”
Second, companies are changing their behavior with the codification of sustainability principles. Minerd believes there is a business imperative to stay ahead of sustainability requirements. For example, “utilities, and their investors, will get stuck with stranded assets if they do not keep up with technological advances in renewal energy.”
Third, data tools are being developed to measure the extent to which sustainability goals are being met. Many firms are working on this, but Minerd introduced a new Guggenheim project, developed with the World Wildlife Fund, called the Sustainability Quotient, which will rate how a project passes standardized independent filters for financial, governance, environment, and social goals.
“This will probably take us a few years to work through,” he said. “But our goal is to have an open architecture for an independent, third-party rating.”