The coronavirus crisis has caused not only the biggest recession since World War II, but also the first global sustainability crisis in history. The crisis highlights humankind’s responsibility for the earth, and represents a wakeup call to preferring a sustainable approach to investment. Speaking at the UN General Assembly in late September, President Xi Jinping of China pledged that his country would "achieve carbon neutrality by 2060." China is responsible for one-quarter of global greenhouse gas emissions.
This effort joins a similar program by the European Union to become carbon-neutral by 2050, as well as local initiatives in the United States, such as California’s ban on the sale of gasoline-powered vehicles starting from 2030. Even in the United Arab Emirates (our new friends), a survey conducted by investment bank UBS found that 85% of investors were interested in changing their strategy and investing in green assets that exert a positive influence on society and the environment. The major opportunity stemming from the Covid-19 pandemic is accelerating the transition to a green economy and shortening the timeframe for achieving the social development goals of the UN.
The world’s leaders and citizens already realize that endless economic growth is impossible on a planet with limited resources. The pandemic has simply hastened the change that was clearly coming in the next decade. The crisis will trigger a wave of regulation and government investment that will flood the financial markets in China, Europe, the United States and indeed, the entire world.
Green investment is growing in Israel, albeit at a slow pace. This week, the TA-125 Fossil Fuel Free Climate Index was launched - had it existed previously, the index would have yielded excess returns over a year, 3 years and 5 years similar to those of other green indexes around the world. In 2015 Israel signed the Paris Agreement, and last month the Ministry of Energy approved a plan to transition to 30% green energy by 2030.
Despite this, compared with the rest of the world in terms of regulation and government priorities, we are still behind. The fact that regulation is not strict enough in comparison with the global trend, combined with the fact that Israel is one of the largest producers of waste per capita, means that regulatory and economic change is necessary, and it will lead to higher returns on the TA-125 "clean" Index than on the index as a whole.
The returns on green shares have already proved to be worthwhile: Research conducted by the National Research Institute in Washington TWR found that during the first half of 2020, 10 out of 10 of the largest ESG funds rose by 2.1 points more than the general market indexes - manufacturing, S&P 500 and exchange-traded funds (ETF). If the returns have not yet convinced investors, managers and directors, the expected waves of regulation will drive change even further and obligate every investor to examine his or her investments through the prism of ESG indexes.
The field of green investment is blossoming at a dizzying pace. According to research by Morningstar, sustainable fund flows in dollars during the first half of 2020 were four times higher than the total flow for all of 2019, which itself was four times greater than that of 2018.
In 2006, after the publication of the United Nations’ climate preservation principles, 63 investment houses that managed a total of $6.5 trillion signed a pledge to integrate environmental responsibility indexes into their decision-making processes. In April 2018, the number of signers had skyrocketed to 1,715 investment houses, managing a total of $81.7 trillion.
UBS has reported that since 2016 it has more than tripled its customers’ sustainable investments. And in a survey conducted by J.P. Morgan among the investment managers of 50 financial institutions worldwide that manage a total of $12.9 trillion, 71% reported that the coronavirus pandemic had increased and will continue to increase awareness of climate change.
The crisis has arrived not only at the doorstep of countries, but also at the doorstep of companies such as Amazon, which established a $2 billion fund for social investment in fields including transportation, energy, logistics, agricultural production and food. The returns on sustainable investment are more profitable; therefore, these companies will recover more quickly from the impact of the coronavirus.
Research conducted by Nordea Equity Research, the largest financial services group in Scandinavia, shows that from 2012 to 2105, investment houses with the highest environmental responsibility ranking were 40% more profitable than those with low rankings. Investors who insist on avoiding green investments, based upon the claim that this is only a passing trend, will find their money has disappeared, together with the polluting corporations.
The writer is the founder of impact investment fund Vital Capital.
Published by Globes, Israel business news - en.globes.co.il - on November 12, 2020
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