NN IP: Five trends to watch in responsible investing

March 18, 2021

We can look back on 2020 as a historic year in which Covid-19 accelerated the trend towards responsible investing. ESG integration gained widespread recognition as a driver of investment returns as sustainable businesses outperformed their traditional peers. As a result, more investors are entering the market and the investable universe is expanding, driven by a surge in sustainable issuance. But what’s next?

In this interview, part of our Responsible Investing Report 2020 series, Adrie Heinsbroek, Chief Sustainability Officer at NN Investment Partners, explores five trends that will shape the future of responsible investing in 2021 and beyond.

1) Clients will focus more on financing true impact

“How can we ensure that the money we put to work in the financial markets has a positive impact in the real world? This will be one of the guiding questions for clients in the years ahead. Covid-19 has led them to focus even more on the fundamental issues that are affecting human life in every corner of the world. We are seeing increased demand for green bonds, sustainable equity strategies and other products that let clients directly contribute to environmental or societal change. Investors are also asking for more transparency on the impact of their portfolios. This trend will only increase, which is why we are constantly improving our reporting and aligning our data processes to meet client needs.” 

2) Investors will increasingly recognize the need for urgent climate action

“The 2021 United Nations Climate Change Conference will increase the sense of urgency to tackle climate issues. Images of clear blue skies in the pandemic’s initial phase opened people’s eyes to what can be achieved, so I think there will be even more pressure on governments to step up their efforts. For investors, it’s crucial to take a broader view on climate. As companies transition to a more climate-friendly business model, they will also face social challenges relating to job security and the skills gap. Long-term investors have to remain invested and support businesses as they take difficult but necessary decisions. If we ask them to change, we also need to finance the change. We expect asset managers to adjust their policies to take this into account more in the future.”

3) Cross-country collaboration on specific issues will increase

“Asset managers will increasingly join cross-industry coalitions to drive change through engagement and dialogue. Europe is taking the lead on this, but we are also seeing the first initiatives on diversity in the US. By teaming up with social and governmental organizations, investors can have more impact on concrete topics that reflect clients’ priorities. A good example from 2020 is our signing of investor statements to halt deforestation in Indonesia and Brazil. Going forward, we expect to team up with many more coalitions to accelerate our sustainability agenda. We are closely following developments relating to the launch of the Taskforce on Nature-related Financial Disclosures. This is linked to the growing importance of biodiversity, a topic where we already interact with sustainability and nature conservation organizations such as the WWF and MVO Nederland. In 2020 we asked global leaders to agree on effective measures to reverse nature loss in this decade to ensure ecosystem resilience.”

4) Investors will use more tools to influence companies

“ESG will become an integral part of the stewardship role of asset managers. So far, it has been difficult for investors to use voting to influence ESG policies, but this is set to change. In the coming years, we expect the first companies to enable investors to vote on their sustainability policies at the annual general meeting. Similar to the ‘say on pay’, companies will start including a ‘say on climate’ or a ‘say on diversity’ as a standard item on the AGM agenda. Investors will also have more ways to influence ESG policies through engagement. We will actively engage with companies as we help them transition to more sustainable business models, and we will also continue to join forces with societal organizations to drive change on specific issues.”

5) Regulatory action will reshape the industry

“Regulatory action will be a major driving force in the industry. The EU’s renewed Sustainable Finance Action Plan will require investors to show how they integrate ESG and how their investments contribute to sustainable change. This trend will mostly focus on Europe for now, but it will also affect companies elsewhere as European investors demand more disclosure from their investments around the world. Clients will benefit because it will be easier for them to compare products and gain more insight into how their money is being used. In addition, we expect asset managers to introduce more investment products that let clients directly participate in positive change.”