To grow sustainable investing, fix the plumbing

To grow sustainable investing, fix the plumbing

Aug 27, 2018
Image credit: Lucas Allmann via Pexels
Monday, August 27, 2018

UBS Chairman Axel A. Weber believes sustainable impact investing, or SII, is becoming a more important segment of global financial markets. But international financial community need to create better systems if SII is to take off, he argued recently in an op-ed in the Financial Times.

“SII funds remain niche within total global wealth, which reached $280 trillion last year,” he wrote. “Why should that be? The answer lies in a lack of financial ‘plumbing.’” Weber had three suggestions.

  • First, a common definition for sustainable investment was necessary to prove to investors that their money was helping the environment, combating income inequality or achieving other goals. Otherwise, they might as well invest in a charity.
  • Second, benchmarks that help investors assess their returns are necessary if fund managers are expected to embrace an asset class that they currently possess very little information about. Benchmarks increase transparency, liquidity and help analysts develop indices to measure sustainable investment’s outputs.
  • Third, a derivatives market that helps large investors hedge their bets and move in and out of markets is necessary if proponents of sustainable investing hope to attract the massive tranches of institutional capital that are flowing around the world in search of returns.

The UN and European Union have launched efforts to promote sustainable finance, wrote Weber. But he added that those organizations would only achieve their goals if they improved the “market plumbing” for sustainable investing.

Image credit: Lucas Allmann via Pexels