Why Impact Investing and What Is the Future of ESG Investments?
This time we talk with Magnus Trampe Broch, the president of Copenhagen Business School Sustainable Investment Club, about the importance of impact investing in today’s world, future trends of ESG investments as well as imperfections in the impact investment field.
Investing in sustainable companies is on a huge rise nowadays. More and more people want to leave accordingly to sustainable principles. But also, they want to undertake further steps. Therefore, they want to invest in sustainable companies. This is why we are here today to talk with Magnus since both of our organizations focus on impact investing.
First, can you please give a quick introduction to what the Sustainability Investment Club does?
Yeah, of course. We are a student organization founded a little more than a year ago here at CBS. What we try to do in the organization is basically to facilitate an environment for students who are interested in the intersection between sustainability and finance, investments in that sphere as well. In specific, what we do here is that we now have a portfolio of stocks where we try to visualize for people, how sustainable investing is not necessarily going on a compromise with returns. So that it is basically what we want to do with the fund that we have. It's a virtual fund and there is no real money in the fund, it's just for visualization.
Besides that, we try to arrange a couple of events where we deep dive into some different parts of sustainable finance. Unfortunately, all physical events in the last year have been canceled due to Covid-19. But in spring we managed to have a series of sustainable finance events where we held three meetings. The first one was with the Nordea’s Investment Banking Division, where we targeted the debt part of the market and saw how big of a player the financial industry can be with issuing debt for sustainable purposes and driving the sustainable change from the financing role of a bank. Then we had one event with the Maersk Drilling, an oil drilling company, which was a little bit controversial. But we wanted to include them as well not to be biased in the companies that we took. We also wanted to hear the angle that they have on sustainability. And it was quite interesting to hear that given they're an oil company which makes money on drilling oil and selling oil as well, they can see the change that is in the market. So, it was exciting to hear what kind of specific initiatives they undertake for conversion towards sustainability. And then the last one was with Axcel, the Nordic private equity fund manager, which explained to us how they incorporate sustainability into their investment process and how they deal with their investors who are conscious and curious about sustainability and ESG, so they value it highly. And it’s nice to hear how they manage a change in the market.
Since ESG investments became popular recently, my question is when did you become enlightened?
So, in my former job at SKAGEN Funds, a Norwegian asset management company, we were bought by Storebrand, a very large Norwegian asset manager who was and still is leading in sustainable investments. And that is why I was introduced to the whole notion of sustainability and the fact that sustainable investments are not necessarily going on a compromise with returns but can drive returns. So that was just my introduction to it. And then I was very interested in the fact that you could do good by also having an economic incentive to invest. I was very fortunate to meet the two other founders (of the club). I met Maja randomly through a mentor program and she was very interested in sustainable investments as well. We both acknowledge that there was and still is a huge lack of incorporation of the sustainable angle into all the causes that we're having. And so, we wanted to change that or at least give the possibility for students to dive into this sphere and learn something about it. Maja introduced me to Mathilde and then the founding clover was set.
For people who want to invest in the stock exchange, it might be very difficult to combine making a profit with investing accordingly to their values. And it can be a big challenge nowadays to make sure that people are aware of what the company offers in terms of sustainability and how they act in general. How do you account for sustainable companies?
It's a very hard question to answer. I think it's something that all asset managers and investors all over the world are still struggling to handle, how do you measure sustainability? How do you exclude and include different companies? It's up to a subjective judgment, thus that is very hard to grasp as an investor. There have been many papers comparing the different providers of sustainability ranking. We have MSCI, which is a huge one. We have Sustainalytics, which is also a very large corporation. Comparing those different sustainability rankings, you don't always get the same answer. That is the core of the problem, analysis is very subjective. But what we specifically try to do in our fund is to first make a negative screening. I think that's the easiest part of it. That's just taking companies that are within the business of weapons, alcohol, and tobacco and all these predefined factors or predefined industries. And then when we've excluded those, we have our final universe. And then what we try to do is to find the friendliest leaders in that universe. And once we did that, we have the final little bowl of companies. Next, we try to pick the ones within that bowl that also have a great business model and the usual stuff that you would consider when investing.
But do you think that something is missing in the field of sustainability?
That's a great question. I mean, what I would love to have, and I'm not sure if that's unreachable. It would be nice if, everyone just agreed upon one kind of measurement, so that each company could have a set of principles that when you perform good on this, it means that you are sustainable and so that we don't have all the different providers. First and foremost, data is very important and there's a lot of companies that don't necessarily report on sustainability. I would say in the majority, it's the largest corporations running who have a lot of capital and a lot of resources that also report very thoroughly on sustainability. And that, of course, creates the bias towards including only the largest companies and the most resourceful companies. But taking it back to your question, it would be great to just have one set of principles that everyone would agree on and everyone would invest from and I don't know if that's an utopia or if it's feasible, but it would be nice.
As a company, we're interested in your perspective on how has the landscape of impact investing changed over time?
Well, during the last two or three years, I would say it has grown, the interest has grown, and the focus has grown. I think also a lot of companies are considering it now. I know, for example, that in a leading Nordic bank during the covid-19 lockdown, the only place that they didn't fire people was only in two departments. They didn't fire anyone at the compliance department and the ESG department. It’s something that I think is truly interesting. I would say the interest is growing and we're seeing more and more companies trying to implement it in some ways.
Thank you, also from the consumer point of view I think more and more people are aware of what's happening in the world and that they can actually, change something with their investments and put their money into companies that they personally align with.
As a person who has been interested in impact investing and also looking at your whole journey, do maybe have any advice for people who are just starting out investing?
That's a great question. I would say if it was black and white, go with sustainable companies because in 10 to 15 years, the companies that aren't allocating resources and converging towards a more sustainable business model, both in terms of the business model wise but also towards being more CO2 friendly having implemented all the sustainability criteria in their business model. I would say companies that don't focus on this will be less valuable in 10 to 15 years. And I believe some of them might even be non-existent by that time. There are many different opinions, some people say OK, so if you start investing only in sustainable companies, why should you be smarter than the whole industry? If you exclude a company, then you're saying that you know more or that you're smarter than the whole industry and so on. I would say the easiest way is probably to use tools as the finuprise app or other kinds of tools to assess this. And as you say, make sure it aligns with your values.
© Impage: Pixabay