Do climate credentials matter to institutional investors? Do ethics win deals? Yes
The climate crisis has reached a tipping point. You can no longer ignore your carbon impact. Institutional investors know this, understand their influence - and want action.
It’s already impacting their decisions
The United Nations’ Principles for Responsible Investing - the world’s authority of leading asset managers - now has approaching $100 trillion in signatories, all required to assess climate impact as part of their investment decisions.
Larry Fink, Blackrock CEO:
“Companies that address sustainability risks will attract investment more effectively, including higher-quality, more patient capital.”
Institutional Investors must disclose their environmental impact
It is already mandatory to report the climate footprint of portfolio companies in countries, including France, and the US Climate Risk Disclosure Act 2018 is set to enforce similar on US institutional investors.
And it impacts your AUM.
Ethical funds grow AUM faster: funds that are designated as climate friendly by Morningstar, received 4.4% additional AUM in the 12 months post designation, whilst signatories of the UN PRI increase AUM at an average of 4.3% per quarter for the 6 quarters post-signing.
This is just the beginning. And money is already moving.
Ethics win deals.
An ethical reputation is the most important factor in whether a founder or management team decides to accept an offer from an investor. This is ahead of value-add or your funds’ track records. In fact, entrepreneurs do not just negatively-screen out unethical investors, but actively partner with ethical over neutral ones.
An ethical reputation is three times as likely to win a deal than value-added services.
Data shows the stronger the company - measured by greater choice in offers from investors - the more likely an ethical reputation wins the deal.
It works both ways. You also want to back CEOs that have the environment on their radar: a McKinsey analysis of over 2000 empirical studies on the impacts of ESG on Equity Returns, showed 61% of studies showed ESG gave a positive return, with just 8% a negative.
The best CEOs know this - they are building the future and their customers’ demand it, after all.
Taking responsibility for your impact on the environment may be the ethical thing to do. But it definitely is the right thing to do, through the ROI delivered by winning deals and securing LPs.
Consequence. helps you secure LPs and win deals, by assessing, offsetting and reporting your impact.
Sources for reference.
- Source EY, Global Climate Change and Sustainability Services study, 2018
- Source Fink, Larry, Letter to CEOs: A Fundamental Reshaping of Finance, 2020
- Source | Alternative Link Ilhan, Emirhan and Krueger, Philipp and Sautner, Zacharias and Starks, Laura T., Institutional Investors’ Views and Preferences on Climate Risk Disclosure (March 23, 2020). Swiss Finance Institute Research Paper No. 19-66; European Corporate Governance Institute – Finance Working Paper No. 661/2020.
- Source In, Soh Young and Park, Ki Young and Monk, Ashby H. B., Is 'Being Green' Rewarded in the Market?: An Empirical Investigation of Decarbonization and Stock Returns (April 16, 2019). Stanford Global Project Center Working Paper.
- Source | Alternative Link Ceccarelli, Marco and Ramelli, Stefano and Wagner, Alexander F., Low-carbon Mutual Funds (April 10, 2020). Swiss Finance Institute Research Paper No. 19-13; European Corporate Governance Institute – Finance Working Paper No. 659/2020.
- Source Kim, Soohun and Yoon, Aaron, Analyzing Active Managers' Commitment to ESG: Evidence from United Nations Principles for Responsible Investment (March 17, 2020).
- Source Drover, W., et al., Take the money or run? Investors' ethical reputation and entrepreneurs' willingness to partner, J. Bus. Venturing (2013)
- Gunnar Friede et Al., “ESG and financial performance: aggregated evidence from more than 2000 empirical studies”, Journal of Sustainable Finance & Investment, October 2015, Volume 5, Number 4, Deutsche Asset & Wealth Management Investment; McKinsey analysis