Sustainability Investing: The ESG Opportunity
Carolina Angarita
Carolina Angarita
Sustainability & Responsible Investing Manager

With a growing level of interest in ethical and sustainability investing, we recently hosted a client webinar with guest speaker Dr. Cara Augustenborg, Environmental Policy Fellow at University College Dublin. Senior Stockbroker Hellen Dalton was our MC and I was delighted to be one of the presenters along with my colleagues from the Cantor Fitzgerald group: Conor McKeon, Head of Corporate Finance, Ian Halstead, Associate Director Investment Services, L&P, Richard Power, Fund Manager of the Green Effects fund and Pearse MacManus, Chief Investment Officer at Merrion Investment Managers.

ESG stands for environmental, social and governance criteria that investors use to assess the sustainability of a company and it has now become a generic term used to describe different approaches to sustainability investing.

We looked at the impact investors can have on the world while achieving better risk-adjusted returns. ESG allows for better risk management for example by avoiding stocks with long-term risk factors like those that are harming the environment, while preferring companies that are better positioned for a low carbon future.

The Cantor Fitzgerald Approach to ESG

At Cantor Fitzgerald we focus on several approaches. ESG takes into account the financial materiality of sustainability risks that can influence a company’s financial performance. Sustainability-themed investing focuses on capturing investment themes that are conducive to sustainable development. Impact investing, which speaks to “solution-first investors”, invests in companies with the specific commercial purpose of solving social or environmental problems and attaining an investment return. Each investment approach is designed to suit specific investor profiles, risk levels and objectives.

The upcoming sustainable finance disclosure regulation will clarify the duties of asset managers and financial advisors’ regarding the importance of sustainability considerations in investment decisions.  We welcome this policy and regulatory support from the EU in matters of sustainability, which is transforming the role of investors in society, from providers of capital to the economy to catalysts of the climate transition and long-term sustainable growth

Climate Change: realities, solutions and policies

Dr.Cara Augustenborg shared insights on the harsh realities of climate change and some of the innovative solutions that are taking shape. The central aim of the Paris Agreement is to limit global warming well below 2 degrees Celsius above pre-industrial levels and as close to 1.5 degrees Celsius as possible. The planet has already warmed about 1 degree Celsius since pre-industrial times. Since then, we have seen significant changes in species extinction, water supply and cereal crop disease.

In Ireland, we haven’t seen the extreme effects of climate change or rising water levels yet, but we are starting to see stronger storms like Hurricane Ophelia along with wetter winters and drier summers. In early 2018, we saw the Beast from the East followed by a prolonged drought that summer. This is linked to our jet stream becoming “wavier” due to rapidly melting icecaps in the Arctic. The jet stream now has steeper trough and higher ridges which raises the chances for long-duration extreme events like droughts, floods and heatwaves. Globally, floods and extreme rainfall events now occur four times more often than in 1980.

How we power and heat our homes, how we get around, what we eat all influences the planet. The Intergovernmental Panel on Climate Change’s recent report stated that in order to have a 66% chance of limiting global warming to 1.5C, global net human-caused emissions of carbon dioxide (C02) need to fall by 45% from 2010 levels to 2030, reaching ‘net zero’ by 2050 (i.e. ensuring any carbon emitted is offset by means that remove carbon from the atmosphere). In 2014, Mark Carney, the former governor of the Bank of England stated, “The vast majority of carbon reserves are unburnable”. If we want to keep below 2 degrees warming, we must keep 80% of our known fossil fuels in the ground.

The good news is that we already have the technology we need to replace fossil fuels. The cost of building onshore wind farms has reduced dramatically in the last 30 years. The energy transition also offers opportunities in places like Ireland, where 66% of our energy needs are dependent on fuel imports, almost all of which is fossil fuels (at a cost of €4 billion in 2017 according to the Sustainable Energy Authority of Ireland). A move to renewable energy would save us a lot of money and create 100,000 jobs.

The current programme for government is the greenest we have ever seen and soon the government will debate The Climate Action and Low Carbon Development (Amendment) Bill, committing, in law, to move to a climate resilient and climate neutral economy by 2050.

Corporate Finance 

Conor McKeon presented an overview of corporate finance activity within Cantor Fitzgerald. The division is committed to supporting high growth businesses, promoting investment solutions that address environmental and social needs while implementing the due diligence process that includes consideration of underlying ESG risks. The team has raised more than €500m in sustainable investment over the last 15 years, with more than €330m in renewable energy projects alone. However, it is not just a matter of looking at the easily identifiable, such as renewable energy, but in fact looking at every project and how they create sustainable impact, through their solutions. The team applies a sustainable impact score to all projects to help identify the companies that deliver the right products, services and innovation in line with the UN’s Sustainable Development Goals.

L&P

Ian Halstead Associate Director Investment Services, L&P (a specialist division within Cantor Fitzgerald Ireland) presented on the company’s impressive track record of impact investing. Since 1987 L&P has been providing ethical investment management services to the non-profit sector in Ireland. L&P’s mission is to be among the global leaders in creating portfolios that generate strong investment returns and seek to address all UN sustainable development goals.

L&P’s typical portfolio is now totally fossil fuel free and produces 160 times the renewable power of an average charity portfolio. Client portfolios have saved emissions equivalent to CO2 emissions from 85,000 households and created 6 times more jobs than an average charity portfolio, predominantly in the developing world.

The Green Effects Fund

Richard Power then presented on the Green Effects fund which is celebrating its 20th anniversary this year. It was launched with the objective of achieving long term capital appreciation by investing in projects and companies with a long-term commitment to supporting the environment and socially just work methods. Stocks are selected through positive screening criteria, identifying companies that are leaders in their space on energy-efficient heating, and power systems based on wind, sunlight, water, sustainable transport construction of heating-efficient buildings, material improving the life cycle of products promoting the circular economy and companies which improve the decomposition or recycling features. The fund has seen terrific inflows this year especially through the pension SDIO investment option and has returned 34% year-to date despite the difficult year in markets.

Merrion Ethical Fund

Pearse MacManus, CIO of Merrion Investment Managers spoke about the Merrion Ethical Fund which was launched in 2004. A multi-asset fund with an ethical overlay, it is designed to provide balanced long-term growth by actively investing in a portfolio of equities, bonds and cash. The fund seeks to invest in stocks which make a positive contribution to society, such as conservation of natural resources, a focus on employee welfare, equal opportunities and corporate governance. The net return for the fund year to date at end November is + 18.2%. There is diversification across sectors and regions. The managers of the fund have found that by having an ESG focus you can increase your chance of a positive return, due to the low risk and high sustainability of the companies involved. The fund holds a top ESG rating (AAA) per MSCI ESG Research.

Investors have a key role to play in building for the future. You can be part of the solution to achieving a more sustainable world.

 

Carolina Angarita-Cala is Sustainability & Responsible Investing Manager at Cantor Fitzgerald Ireland.

Contact details for each individual team member can be accessed here on our website should you wish to speak with a Portfolio Manager or Account Executive.

Warning: Past performance is not a reliable guide to future performance. The value of your investment may go down as well as up.