The future of investing is green, and it’s here to stay.
In the world of investing, the winds of change are blowing. They're not just blowing; they're gusting, reshaping the landscape as they go. And the name of this wind? ESG – Environmental, Social, and Governance. It's not just a buzzword; it's a seismic shift in how we think about investing.
Gautier Rousseau, CIO of Amundsen Investment Management, recently sat down for a chat on the Junicorn Talk podcast. He didn't just talk about ESG; he painted a picture of a future where ESG isn't just a consideration—it's the consideration.
ESG is the New Normal for Investments
ESG isn't a trend. It's a fundamental shift in the way we think about investing. This shift isn't just a surface-level change; it's a deep, structural transformation that's altering the very foundation of investment strategies.
Gautier says, "We don't market sustainable funds, but we take ESG considerations very seriously in our research investment process."
Here's what that looks like in practice:
Research: When researching potential investments, ESG factors are a key part of the analysis. This could involve looking at a company's carbon footprint, its labor practices, or its corporate governance structure. It's about understanding how these factors could impact the company's long-term performance and risk profile.
Engagement: Gautier mentions that they "engage a lot with companies considering coming to the market." This engagement isn't just about financials; it's also about understanding a company's approach to ESG. Are they taking steps to reduce their environmental impact? Do they have strong governance structures in place? These are the kinds of questions that are being asked.
Decision-making: ESG considerations aren't just a 'nice-to-have'; they're a key part of the decision-making process. If a company doesn't meet the ESG criteria, it could be a deal-breaker, regardless of how attractive the financials might be.
But this isn’t just about ticking boxes. It's about understanding that ESG factors are integral to long-term success. Investors are increasingly looking for companies that don't just talk the talk but walk the walk.
It's not just about being 'green' either. It's about demonstrating a commitment to sustainable practices across all aspects of business.
Long-Term Sustainability is Key for IPO Success
In the high-stakes world of Initial Public Offerings (IPOs), sustainability has emerged as a non-negotiable factor for success.
Gautier Rousseau, with his wealth of experience in investment management, emphasizes this point: "I think companies coming to the market, they need to show they have those practices in place if they want to be a successful long term company."
This statement underscores the importance of sustainability in the context of IPOs. But what does this really mean for companies looking to go public? Let's break it down:
- Sustainability as a Business Strategy: Companies need to demonstrate that sustainability is woven into their business strategy. It's not enough to have a standalone sustainability report or a dedicated CSR team. Sustainability needs to be integrated into the company's core operations, from supply chain management to product development.
- Future-Oriented Thinking: Investors are increasingly looking for companies that are not just profitable now, but will continue to be in the future. This means companies need to show they are thinking beyond the next quarter. They need to demonstrate that they are considering long-term trends, such as climate change and shifting consumer preferences, and are taking steps to adapt to these changes.
- Transparency and Reporting: Transparency is key when it comes to sustainability. Companies need to provide clear, comprehensive, and credible information about their sustainability performance. This includes information about their environmental impact, social contributions, and governance structures. This level of transparency helps build trust with investors and shows that the company is serious about sustainability.
- Stakeholder Engagement: Companies need to show that they are engaging with their stakeholders - including employees, customers, suppliers, and the communities in which they operate - on sustainability issues. This engagement can take many forms, from employee volunteering programs to customer feedback surveys, but the key is that it needs to be meaningful and ongoing.
In essence, when Gautier says companies need to show they have sustainable practices in place, he's talking about a holistic approach to sustainability that goes beyond mere compliance. It's about demonstrating a genuine commitment to sustainable business practices and showing that these practices are embedded in the company's DNA. This is what investors are looking for, and this is what will set companies apart in the increasingly competitive IPO market.
The Future of Investing is Green
There’s no denying that the future of investing is undeniably green. Gautier makes it clear that the trend towards ESG-focused investing is not a passing fad, but a fundamental shift in the investment landscape.
"The asset flows, as I said, will continue. There will be more and more inflows looking for those opportunities. So the importance of that will grow," Gautier predicts.
This isn't just a prediction; it's an observation based on current trends. Investors are increasingly seeking out opportunities that align with ESG principles, and this demand is driving asset flows.
Here's what this means for companies:
- Increased scrutiny: As more investors look for ESG opportunities, companies will face increased scrutiny of their ESG practices. This isn't just about having a sustainability policy in place; it's about demonstrating a genuine commitment to ESG principles in all aspects of business operations.
- Greater competition: As more companies recognize the importance of ESG, the competition to attract ESG-focused investors will intensify. Companies that can demonstrate strong ESG practices will have a competitive advantage.
- Long-term planning: Gautier's advice to companies is clear: "They need to look at the future." This means thinking beyond the next quarter or fiscal year and considering how decisions made today will impact the company's ESG profile in the future.
The upcoming enforcement of the EU taxonomy, which defines what is sustainable, will further amplify the importance of ESG in investment decisions. This isn't just a regulatory requirement; it's a tool that will help investors make more informed decisions about which companies are truly committed to sustainability.
In essence, companies need to adapt to this reality. It's not just about doing the right thing from an ethical standpoint; it's about doing the smart thing from a business perspective. ESG is no longer a 'nice-to-have'—it's a 'must-have'.
Governance, the Unsung Hero in Investments
When it comes to investment decisions, governance is the unsung hero. It's the 'G' in ESG that often gets overshadowed by the environmental and social components, but its importance cannot be overstated. A
As Gautier points out, governance is a critical factor that investors scrutinize, especially when considering IPO candidates.
"I think us as investors would like to see from IPOs candidates the same type of disclosure that you will get from existing listed companies from the ESG perspective, environmental, social and governance."
Simply put. There needs to be a level of transparency and accountability required from companies seeking to go public. Investors are looking for the same level of disclosure from these companies as they would from already listed entities.
Governance isn't just about ticking boxes for compliance; it's about ensuring that the company has a robust framework that aligns with its long-term strategy and risk management.
It's not just about the financials; it's about the fundamentals.
The ESG Dividend: A Path To Lower Cost of Capital
In the world of investing, the cost of capital is a critical factor. It's the rate of return a company needs to provide to its investors to justify the risk they're taking.
But could strong ESG practices lead to a lower cost of capital? Gautier Rousseau suggests it's a possibility.
"When you look at your consumers, what consumers eventually want. And I think you have to address that point. Obviously us as investors, we provide models, the financing part of the equation, how to fund this business"
While Gautier acknowledges that there isn't definitive research to back this up, as an expert in the field, he suggests that companies with strong ESG practices may potentially have a lower cost of capital. This is because these companies are likely to attract a broader range of investors, including those specifically looking for ESG opportunities.
In essence, companies shouldn't just focus on "doing good" in the external sense. They need to internalize these practices, making them a core part of their business strategy. It's not just about ticking boxes; it's about genuinely committing to sustainable and ethical practices.
Conclusion: The Green Wave is Here to Stay
The green wave is here, and it's reshaping the investment landscape. ESG isn't just a consideration; it's THE consideration. It's not just about doing the right thing; it's about doing the smart thing.
And as Gautier Rousseau reminds us, it's not just about the here and now; it's about the future. The future of investing is green, and it's here to stay.
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