To achieve a sustainable society, where people can live fulfilling and meaningful lives, sustainable impact investing must target the three pillars of climate, poverty and health together.
COVID-19 is testing our hyperconnected way of life but it should also serve as a catalyst for a refocussing of our efforts in sustainable impact investing. While in the short-term a prioritisation of rapid economic recovery may to some degree obscure the green agenda, the longer-term outlook if anything is clearer in respect of the need and desire to mobilise capital at vast scale to finance the transition to a sustainable future.
The core of this is simple: the objective of sustainable investing must be to create a society which can thrive into perpetuity. By necessity, such a system must be robust. If managed correctly our newly interconnected world allows for the possibility of extraordinarily rapid progress in respect of decarbonisation and poverty alleviation. Potentially we have all the technology we need to transition to a low carbon but abundant future, if it can be deployed correctly. But this will be meaningless if we ignore the other necessary components of the system. A gym-goer who only does sit-ups and bench-presses ignores the need to work on many other muscle groups and consequently ends up beefy but fragile, and prone to break down. Right now, a light is being shone very brightly on the fragility of our system in respect of global health.
Health represents a third pillar of sustainable investing alongside climate mitigation and economic development. Indeed, the three are inextricably intertwined. As people move out of poverty they are more resilient to climate change; as we promote access to cheap renewable energy we facilitate more economic progress, and also improve health through material reduction of localised pollutants; as people become and remain more healthy they can contribute more to economic development. Ecosystem destruction, conversely, may act as a crucible for future pandemics.
I would suggest three key underlying concepts which can underpin our approach to these three pillars:
- Modular, local, but with easily repairable interconnections. A completely globalised world, with production diffused across the system is highly vulnerable to shocks, as the current situation highlights. No one country or region can fend for itself. An increased emphasis on local self-reliance in areas such as food production, whether at a national or community level, is inevitable. Equally energy systems dependent on large, centralised generation assets are susceptible to points of failure. Renewable energy, in particular solar power, is inherently modular and when paired with battery storage can provide reliable power even when grids shut down. However, until there are true step changes in technology – such as the ability to create any kind of material, anywhere – international connections continue to be necessary. The sustainability transition will need massive quantities of metals and minerals which can only be sourced from certain regions around the world. Modern energy systems require sunny and windy areas to be linked up to centres of electricity demand, sometimes over thousands of miles. Planning must contemplate the likelihood that such connections will one day be cut, whether through pandemics or climate events, and therefore plan for the temporary running of local systems in isolation while ensuring the rapid restoration of the connections.
- Digital, and do more with less. Existing computing power and data allow us to protect global health and run clean energy systems. Evidence is suggesting that, in the short-term at least, South Korea has achieved some success in limiting COVID-19 through wide ranging diagnostic programmes and data analysis. Modelling now indicates that deeply decarbonised energy grids can be achieved using only established technologies such as wind and solar, if sufficiently smart, flexible and interconnected energy grids are created. Data also allow us to understand key resource constraints, and how to manage them: intensive care units in acute health crises, or different medical or sanitation initiatives in areas of chronic poverty. While we wait for killer technologies – vaccines; new forms of nuclear energy – we can address climate, poverty and health effectively with what we have.
- No more ESG window dressing. Period. Until coronavirus swamped the headlines, sustainability, impact, responsible investing and ESG were of course the current topics of the financial and economic universe. To take one of many estimates $23tn were reputedly invested in sustainable strategies by the middle of 2019. What exactly these strategies are – their objectives and what they achieve – of course is a very separate question. An ESG-compliant strategy may be confined to screening out certain forms of investments deemed “wrong”, or may qualify for an ESG label by being able to point to a lot of paperwork regarding management or reporting processes, nominally related to environmental or social issues. Window dressing, in other words. What is needed is transparent and effective investing for sustainability with material and demonstrable impact on the great issues we face today. Genuine sustainable impact investing should aggressively target climate, alleviate poverty, and promote and protect health, as measured in genuine emission reductions, economic development and health outcomes. The evolution of reporting and investing frameworks such as the EU Sustainable Finance Taxonomy are welcome in this regard, because they focus on the big picture and ensure that investors have visibility that their activities are consistent with, and support, international sustainability pathways such as emission reductions goals set under the 2015 Paris Agreement.
COVID-19 is ultimately a dress-rehearsal for a future potential genuinely cataclysmic pandemic. However, it is highlighting in stark relief our current fragility and we must address this with urgency and vigour. And we should do this as part of an integrated programme of sustainable impact investing.