Finding meaningful investment strategies for the success of economy

By Alice Chapple - Forum for the Future
 
In August, the UK Government published a paper on ‘Enabling the transition to a green economy’. This paper states, “A green economy is not a sub-set of the economy at large – our whole economy needs to be green.” It recognises that every company and individual needs to play a part in the shift from unsustainable activities to sustainable ones. There is no separate ‘green’ enclave where solar PV, waste management technologies and electric vehicles are developed, whilst business continues as usual elsewhere.

Of course, this is no surprise to the leading businesses in all sectors of the global economy. They know that continued growth and success in their sector depends on finding new ways of doing business that ‘decouple’ that growth from increasing emissions and resource use. And that this will require a significant drive for innovation in products and processes. But the vast majority of companies are still preoccupied with incremental improvements and with their performance relative to their peers.

At the same time, the strategies adopted by investment funds tend to view ‘green’ as a series of specific themes - climate change, clean technology, water funds. Capital is certainly needed in these areas. But few funds take a wider view on the investment required to enable the transition to a green economy – largely because their perspective tends to be short-term. Recent work by Forum for the Future has highlighted why this will not deliver the best outcomes for investors.

The BT Pension Fund announced in August that it had placed some of its funds on a trial basis into a climate-change weighted version of the FTSE All-Share index, stating their view that this would enhance and protect the value of the portfolio. More funds will need to find effective ways to identify and weight the companies with meaningful strategies for success in the green economy. When this starts to happen, we will have a virtuous circle where companies will improve their environmental performance to prevent an increase in their cost of capital. And we will genuinely start to move towards a green economy.

Alice Chapple is Director, Sustainable financial markets at Forum for the Future.

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