Consumers are highly aware of the environmental and social impact their spending habits can have.
Investors are increasingly demanding that their investments not only deliver sustainable financial returns, but also reflect their ethical or moral values. And regulators are enforcing more stringent environmental and social protections.
European companies are at the forefront of this sustainable revolution, leading their industries in sustainability agendas.
As asset managers, we too have a role to play.
A high-profile, galvanising force for positive change has been the UN’s Sustainable Development Agenda.
At the end of 2015, the UN set out 17 sustainable development goals designed to help governments and regulators meet the most pressing global challenges.
The task is a sizeable one. According to the UN, it will require around $5-7tn (£4-5.7tn) annually to meet its agenda.
As a result, the SDGs have rapidly become a call to capital for investors and asset managers alike.
One increasingly popular way asset managers can help meet the UN’s agenda is through impact investing.
This involves investments that seek to have a measurable positive environmental and social impact alongside financial returns.
With their strong sustainability credentials and global leadership on social and environmental issues, and early adoption of the SDGs into strategy and business practices, European companies are an attractive opportunity for impact investing.
From across the region, we are seeing numerous companies whose products, services and business models provide solutions contributing to positive change in areas such as healthcare, education, agriculture and energy – opportunities for active investors abound.
While measuring financial returns is relatively straightforward, quantifying positive environmental or social impact is more difficult.
European companies are at the forefront of impact measurement, providing specific data and case studies on the real-world impact their products have. But how does this look in practice?
One company leading the way is Vestas. It designs, manufactures, installs and services wind turbines.
Over its lifecycle, a Vestas wind turbine will generate 30-50 times more energy than it uses and will emit 1 per cent of the carbon dioxide per kilowatt hour compared to a coal power plant.
These achievements address climate change and support the global achievement of the UN’s goal seven (affordable and clean energy) and 13 (climate action).
French utility company Suez provides water and wastewater treatment services to 23.8m people in developing countries. It also targets an increase in this number by 2021.
Suez’s services help to fight rising inequalities and support country efforts to address goal one (no poverty), six (clean water and sanitation) and 14 (life below water).
While disparate in nature, these companies share a common theme: they seek to generate a profit. Their activities are not pet projects. Investors should not confuse impact investing with philanthropy.
Offering innovative products and services is an intentional strategic decision designed to yield long-term revenues, benefiting from changing consumer demands and regulation, while still tackling the planet’s problems.
Many European companies are leading the charge, offering unique products and services that align to the UN’s agenda.
As for investors, they can take satisfaction knowing that they are doing good while securing their financial future.
Sarah Norris is investment director at Aberdeen Standard Investments
