First, you are more likely to deliver superior financial returns if you optimise for ESG, sustainability, or impact.

Larry Fink noted in his 2022 letter¹ “a company must create value for and be valued by its full range of stakeholders in order to deliver long-term value for its shareholders”.

New York University and Rockefeller Asset Management² concluded in a recent metadata study that a sustainable approach to investment leads to superior returns. The FTSE Environmental Opportunities Index (includes all companies with involvement in renewable & alternative energy and energy efficiency) outperformed its Global Index by 4.9% per annum from 2015–2020. Leapfrog’s most recent impact report³ highlights its financial outperformance (27% revenue growth on average for portfolio companies) as well as its high impact results.

It is increasingly evident that sustainable impact-led investment leads to outsized returns. It’s also your opportunity to use your capital resources to drive solutions to the world’s greatest challenges.

Second, there are more and more attractive opportunities to allocate capital for impact.

In equity, alongside the huge growth in private equity impact funds, we are seeing the emergence of many impact ‘unicorns’, valued at over $1 billion, and the number of young sustainability and impact companies raising capital is rising impressively, especially in clean technology.

Fixed income issuers are also acting on this. On the supply side, according to the Climate Bonds Initiative, green, social, and sustainability bonds now have cumulative labelled issuance exceeding $2 trillion⁴. Such instruments offer companies a reduction in the interest they pay if they achieve predetermined environmental or social impact targets. According to Moody’s, sustainability-linked bonds raised $100 billion in 2021, up from $20 billion in 2020⁵. Sustainability-linked loans, which adopt a similar logic, exceeded $800 billion in 2021.

The landscape of risk and opportunity is being increasingly shaped by huge leaps in technology. In industries, such as energy, we are seeing dramatic shifts in business models that are supporting the sustainability of long-term returns. In healthcare, education, and financial services, digital technology is opening previously unimaginable opportunities for positive, market-led impacts.

Emerging economies present a particularly interesting opportunity. With much of the infrastructure still to be built in Africa, Asia, and other developing regions, a unique opportunity exists to use digital advances to leapfrog towards better, more sustainable solutions for billions of the world’s poorest people, leading to improved social equity outcomes and a sustainable planet.

Third, and arguably most importantly, through allocating more of your capital to impact, you are directly contributing to solutions to the world’s challenges, the #SDGs, the #justtransition to #netzero, improving people’s lives, and making our planet more sustainable.

¹ BlackRock

² Stern-NYU & RAM

³ Leapfrog

⁴ Year-on-year growth in the Green, Social and Sustainability bond market hit 59% in the first quarter of 2021.

⁵ Moody’s ESG Solutions (October 2021)