Market Comment: Sustainable investing in the news in 2018

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It is still early in the new year, but there have already been a number of headlines related to the steps large investors are taking to make their investments more sustainable.

Esther van Munster, ABN AMRO Equity Manager, specialized in sustainable investments, says it is a sign of the rising importance of sustainable and responsible investment.

Norway’s USD 1.1 trillion sovereign wealth fund, for example, has sold its stake in nuclear arms producers. The fund has also excluded some Asian shipping companies,  based on the risk of severe environmental damage and violations of human rights.

Van Munster is not surprised. “There is a worldwide increase in sustainable investments,” says Van Munster, “with more attention paid to it in Europe than in the US. In 2016, 52.6% of the assets managed in Europe took into account sustainability indicators with their investments. In the US, it was only 21.6%.”  This data, from the Global Sustainable Investment Alliance, uses a very broad definition of what falls under sustainable investing. Van Munster notes that “ABN AMRO’s guidelines are more stringent.” 

Large Dutch pension fund excludes tobacco

Another recent move concerns the largest European pension fund. The EUR 400-billion pension fund for Dutch government and educational institutions, ABP, has announced that it is expanding its sustainable and responsible investment policy. It has decided to exclude companies related to tobacco and nuclear weapon production and says it is taking this step based on feedback from plan participants, employers and special-interest groups. Van Munster notes that ABN AMRO was ahead in this area, having excluded investments in nuclear arms several years ago. She notes that ABN AMRO also supports excluding tobacco from investment portfolios. 

News reports say that as a result of the pension fund’s decision, it will be divesting investments in the now-excluded portions of its portfolios for a total of EUR 3.3 billion in 2018. The plan is to divest not only from manufacturers of tobacco and nuclear weapons, but also from related producers, sellers and associates. One of its new criteria is to exclude from investing in products that are “harmful to people.”

Europe likely ahead of other areas in terms of excluding tobacco

ABN AMRO’s sustainability expert believes that Dutch investors may be ahead of countries in excluding tobacco producers. “The view in emerging markets is likely still very different,” she says. ABP states that it does not expect a significant impact on returns as a result of its decision, despite healthy profits formerly from its tobacco and nuclear weapon related investments. Munster concurs that this is important. “An often-heard criticism of sustainable investing is that such a policy will dent returns. But at ABN AMRO, that is not our experience.”