By Rainer Michael Preiss
The 1st Nobel Memorial Prize winner in Economic Sciences in 1969, Dutch Economist Professor Jan Tinbergen stated: "Equal distribution, and fairness, creates profits, not the other way around."
For a long time, this was NOT a very fashionable statement.
The last few years however have seen increased interest in Impact investing and sustainability, Corporate Social Responsibility triple-bottom line philosophy and Environmental, Social and Governance (ESG) focused investment.
Indonesia has been committed to achieve the goals defined by the international community in the 2030 United Nations Sustainability Agenda. has been making continued efforts to implement the Sustainable Development Goals (SDGs) at the national level.
Indonesia has the fourth largest population on earth, is an emerging economy and hence plays an important role in following the goal to more sustainability.
During the initial phase of the Coronavirus pandemic, Indonesian equites like almost all asset prices fell sharply. Sustainability and ESG investments however did better than most, according to a recent analysis by Morningstar.
Denmark however according to Bloomberg data is the best performing stock market globally year-to-date 2020 with +9% in U.S. dollar terms against the backdrop of being one of only 4 stock markets worldwide being positive for the year.
Denmark as a country has long put sustainability and ESG on the top of its agenda. As the world is struggling with COVID-19, rising unemployment and unprecedented central bank stimulus and bailouts widening the wealth gap, Denmark equities (many Danish companies are global leaders in Sustainability) and top the list of the world’s most sustainable companies ranking 2020.
Denmark’s largest pension fund PFA with DKK560 billion ($82 billion) in assets, has launched a pension product that allows participants to invest their retirement savings in climate-focused investments that it says will be carbon neutral in five years at the latest.
Denmark’s MP Pension divests 24 oil company holdings and in future, bonds and shares issued by coal and tar sands companies will be excluded. The Pension Fund joined the "Race to Zero" initiative, comprising a group of investors and companies across the globe that aim to make the world carbon-neutral by 2050. It pledged support to the initiative by becoming a signatory to the United Nations-convened Net-Zero Asset Owner Alliance.
President of the European Central Bank Madame Lagarde recently stated “We have the opportunity to step up the EU’s efforts to achieve its sustainability efforts by including climate change and sustainability considerations in the financial response to the COVID-19 Pandemic”
Historically and pre-COVID many investors thought that focusing on sustainability narrows the investment universe and could lead to lower returns. Going forward there is the higher probability that markets and investors will focus more on the social costs, the environmental costs, human costs of economic activity.
A sustainability mindset helps companies to make sense of a rapidly changing world and helps to be able to have early responses to any new economic, technological or social wave that's coming, in order to stay ahead of the curve.
The bottom line really is we're not going to achieve sustainable development without some pretty serious reformation of the extreme capitalistic economic system that puts profits before purpose.
A new emerging view is that there is no need to sacrifice return when investing in
solutions for sustainable development. To put it even stronger, investors should invest in the future to preserve the value of their investments.
Rainer Michael Preiss is the Chief Investment OQcer – Equity at The Global CIO OQce.