Growth is not everything

Iceland, Scotland, Wales and New Zealand have abandoned one dogma: continuous growth as the central goal of an economy. Together, the four countries have been forming the group of “Wellbeing Economy Governments” for a few years now. In future, they no longer want to focus on the development of gross domestic product (GDP), as has been the case to date. Instead, indicators such as equal pay, child satisfaction, access to green spaces and affordable housing are to take center stage. This is the only way to tackle challenges such as climate change or an ageing population.

This paradigm shift is by no means the thinking of utopians. Rather, it is in line with a reorientation that has been taking place on the capital and investor markets for several years. Potential investors are less and less interested in the traditional key figures used by rating agencies such as Moody’s, Standard & Poor’s or Fitch to rate companies. Today, if you want to convince investors, you have to be able to demonstrate top scores in areas such as the environment, social issues and corporate governance. The demand for such ESG investments, known by the English terms environment, social and governance, is increasing on the markets worldwide. Last September, the major bank UBS made such investments a basic option for wealthy clients. Anyone who wants something different must explicitly request it.

Some experts estimate that in five years’ time, more than half of investment capital will be invested according to sustainable principles. However, it would be naïve to believe that this shift is solely due to an interest in sustainability. Of course, it is still about making money. However, Dieselgate or the events surrounding Wirecard have shown that traditional performance indicators such as yield or sales growth do not guarantee an adequate return on investment – if at all. A good ESG rating seems to be a much better long-term indicator when it comes to avoiding corporate scandals or not being criticized by clients for unethical activities of portfolio companies. Even the world’s largest asset manager, Blackrock, is therefore increasingly focusing on ESG criteria. In a letter to companies at the beginning of 2020, Larry Finck, CEO of Blackrock, emphasized that sustainable and climate-conscious portfolios offer investors better risk-adjusted returns. In future, the asset manager will make sustainability a key component of portfolio construction and risk management. Blackrock intends to gradually divest itself of investments that pose a significant sustainability risk, such as securities from coal producers, and investments in fossil fuels, for example, will not even be included in new investment products.