In February 2020 BlackRock issued a report doing away with traditional thinking on the investment aspects of sustainability and making the case for the market to reward assets that can demonstrate sustainability. The shift is still incremental, but it is rapidly gaining momentum to impact the value of every asset:
“The past year has seen a marked shift in society’s attitudes toward sustainability. This shift is spurring political pressure, a regulatory push and technological advancements to create the foundations of a more sustainable world, leading to a change in investor behavior and setting in motion a major yet gradual capital reallocation.”
“The coming capital reallocation is not yet in prices: this long transition in sustainable preferences and practices will make some assets more expensive (those with high sustainability) and others cheaper (those with low sustainability). This means that assets with high sustainability will be rewarded through the long transition period.”
“Sustainability effects and societal attitudes will impact all assets and therefore the whole portfolio. The direct impacts of climate change and the coming capital reallocation will reshape economic fundamentals, expected returns and assessments of risk.”
As investors shift money into sustainable funds and companies that perform well on environmental, social and governance metrics they provoke what BlackRock call a “tectonic shift” in the value of assets.
A recent Growth Matrix developed by Deloitte identifies three key vectors for development at product level: Artificial intelligence; Innovative pricing models; and Environmental, social, and governance (ESG) products.
Not only assets in the form of brands and companies will need to demonstrate sustainability. This will be required also at product level and moving towards being able do document this for individual products is rapidly becoming a key vector for validation and pricing.
Also, the shift in value of sustainable products and assets ties in with rapidly increasing requirements for reporting and disclosure of the carbon footprint of investments. The pressure from consumers, investors and regulators for financial institutions and asset holders to disclose not only their own carbon footprint but also that of their portfolios has recently provoked a range of major operators in the financial markets to ramp up their ambition for reducing their climate impact and for some to pledge to align with the Paris Climate Agreement.
As a tool for documenting individual products, TrueTwins provides producers with a means to differentiate, validate and price their products thus opening also new opportunity in the circular economy.