*This article is written in partnership with Mirova
Finance can transform economies to preserve and restore ecosystems and the climate while promoting self-inclusion, health and wellbeing.
This is the aim of French-based investment company Mirova in its first “Mission Report” released in which reconciles its focus on sustainability since 2014, with financial performance and other achievements over that time.
A conviction-based management company, Mirova scores highly on the internationally recognised BCorp certification, attesting to its environmental and social commitment, and is supported by French asset management company, Natixis Investment Managers. Its Mission Report says investors do not have to “choose between meaning and performance” as the world moves to more sustainable investment models to limit the effects of climate change.
As of June 30 2022, Mirova manages €25.5 billion ($37.1 billion) in assets across equities, fixed income, private equity, energy transition infrastructure, social impact and natural capital and has helped to accelerate the transformation of the economy from its inception soon after the Global Financial Crisis in 2008 says chief executive of Mirova US Jens Peers, based in Boston.
“Our CEO Phillipe Zaouati wrote a book about positive finance, just after the financial crisis, because it was apparent that there was so much money in the world that people found that they needed to invest in things like derivatives on subprime lending,’’ Peers says.
When the world entered the crisis, there was “not even a potential positive value to society”, with this type of synthetic investment, he says.
“If you invest in wind farms or invest in education, and your return is not there, at least you have the benefits. There’s a reason why you want to invest in those, but the only reason why people wanted to invest in derivatives on subprime lending… was to get, potentially, a quicker financial return.”
Now as a broader asset manager, Mirova has direct investments in private equity related to the fight against deforestation, desertification, replanting parts of the Amazon rainforest, and cleaning up the oceans, Peers says.
“Of course, our investments there have a very direct and immediate and measurable impact,’’ Peers says. “Those are, let’s say, the more sexy parts of what we do as a house, but they’re all smaller projects as well as very early stage.”
When asked about what Mirova does for mainstream investors with large amounts of funds to invest like pension funds, or private individuals combined, Peers says: “if you need liquidity, if you’re a big pension fund that owns $60 billion or so, and you want to invest two or three per cent, in a specific asset, the assets are typically in the developed world’’.
Most of Mirova’s funds are in listed equities, biased towards developed countries, but also with exposure to opportunities, projects and emerging markets, he says.
The result of money flowing into environmental, social and governance (ESG) was slower but had strong impact.
“We already see that, over time, it starts to take some effect. We’ve seen fossil fuel companies complaining about the fact that they can’t get funding … there’s this supply and demand thing,” Peers says. “If your funding is not there, you have to pay more for it, and complain about that, it’s really starting to have an impact.”
Ratings provider Morningstar estimates US$2.7 trillion ($3.98 trillion) is invested in ESG-focused funds globally, with Australasian-based ESG funds experiencing an 8.6 per cent decline in value in the first quarter of 2022 to $38 billion.
Ethical investment financial advice firm Ethinvest general manager Fiona Thomas says there may be short term underperformance by ESG funds, but the long-term horizon is strong.
“You don’t need to sacrifice performance to invest in line with your values and that’s been proven,’’ Thomas says. “There will be periods where you might see underperformance but if you look at the long-term, it’s a myth that sustainable investment underperforms.”
She says her clients, not just Generation Z and Millennials, are increasingly turning to ESG and responsible investments, with Ethinvest part of a 40-member cooperative which analyses and rates super and investment funds for their sustainability pedigrees.
Both Mirova and Ethinvest are also amongst the 500 members of the Responsible Investment Association Australasia (RIAA) which represents $US29 trillion in assets under management, the largest and most active network of people and organisations engaged in responsible, ethical and impact investing across Australia and New Zealand.
RIAA chief executive Simon O’Connor says tighter regulation from the US, Europe and Australia is demanding better transparency from ESG-focused funds to deliver on their commitments – showing an articulation of standards of leading practice in the responsible investment sector.
“We are now just around the corner from a world whereby all large companies are reporting regularly and consistently on how they are managing sustainability issues, and their approach to climate change risk whereby the activities of those same companies can be clearly defined – through the emergence of taxonomies – as to whether they are contributing to a sustainable future, or eroding that,’’ O’Connor says.
“Investors can then bring together that data to more simply assess risk, to target investments to cleaner industries, and then clearly measure their own progress towards net zero.’’
Peers says the positive impact from investments in environment, the E of ESG, is easy to define as a solution to climate change but the social and governance impacts are about avoiding risk such as inequality, by employing diverse workforces, mitigating human rights breaches, and having transparent supply chains.
“We also don’t invest in companies that we believe have a negative impact on one or more (United Nations) Sustainable Development Goals,’’ Peers says.
Those goals call for action by all countries, poor, rich and middle-income, to promote prosperity while protecting the planet and recognise that ending poverty must go hand-in-hand with strategies that build economic growth and address a range of social needs including education, health, social protection, and job opportunities, while tackling climate change and environmental protection.
For investors, this means sustainability should “drive every single decision” while adapting to new challenges and opportunities, Peers says.
“Biodiversity, is coming up now, and currently almost nobody’s looking at it,” Peers says. “But it’s going to be a big theme, we believe, in a couple of years’ time.
“How do you think about that in portfolio construction? That’s not something people have done until very recently in general, and that’s also, where I believe we have a clear advantage.”
Meanwhile current economic volatility, such as the recent inflation spike partly created by the war in the Ukraine, may push a stronger sustainable investment focus.
“If anything, the war in Ukraine is going to accelerate that debate now, not so much for climate change reasons, but because Europe needs to be a lot more independent in terms of its energy provisioning, for instance,’’ Peers says. “So, longer term, the fundamentals, are even worse for fossil fuels and a lot better for renewables.”
Much of the shift towards sustainability will be driven by private assets, he says.
“Being active in the private space allows us to detect a few things before they happen in the public active space,” Peers says.
Mirova is investing in natural capital, ocean strategies that can remove plastics, aluminium can manufacturing and recycling, and technology that will drive sustainability.
“I’m a sceptical optimist and I’m a big believer in technology,’’ Peer says. “The electrification of our economy is probably going to accelerate quite significantly. Technologies are there, we just need to invest in them more.”
Disclaimer:
This information is provided by Mirova US LLC. This is general information only and does not take account of the investment objectives, financial situation or needs of any person. It is not investment advice and should not be relied upon in making any investment decision. Mirova US LLC is an investment adviser registered with the U.S. Securities and Exchange Commission (SEC). Mirova US LLC is an authorised representative (No. 001277502) of Natixis Investment Managers Australia Pty Limited (AFSL 246830).
Past performance is not a reliable indicator of future performance.
Future results are impossible to predict. This article contains opinions, conclusions, estimates and other forward-looking statements which are, by their very nature, subject to various risks and uncertainties. Actual events or results may differ materially, positively or negatively, from those reflected or contemplated in such forward-looking statements.
