This article features as part of IFA Magazine’s celebration of World Earth Day
Sarah Hughes, Head of ESG and Sustainable Investing for American Century Investments, talks to IFA Magazine about this year’s Earth Day and how financial services can continue to support the ESG agenda.
The theme for this year’s Earth Day is #investinourplanet – what does this mean to you?
SH: Changing consumer preferences, increasing net zero commitments, financially viable solutions and most of all increasing global regulations have moved the conversation from ESG risk to sustainable investing. In order to meet our global decarbonization goals is going to require $3-5trl a year for 30 years – this is going to lead significant innovation, the development of more sustainable products, transitioning business models and a remarkable investment opportunities.
From a personal perspective, investing in our planet, is investing in the future and educating the next generation. I am so excited to be going into my son’s first grade class to introduce the concept of biodiversity and do a joint presentation with him on the importance of bees to our planet.
Do you think the investment and advice community can drive change?
SH: I certainly believe the investment community can drive change – I feel the question is how do we move from ambition to action? There has been a significant number of commitments setting by governments, investors and policy makers however, even more action is needed. As investors we need to continue to engage our companies and push them to transition to more sustainable business models. We all need to hold ourselves more accountable for setting transparent climate goals and a time-based strategy for achieving those goals.
The financial community also needs to continue to educate advisors and investors on ESG investing. A recent article by Barron’s highlighted a FINRA study how far we need to go in educating the retail investor on ESG (https://www.barrons.com/articles/esg-meaning-sustainable-investing-study-51649719876) with only 21% of the respondents knowing what ESG stands for!
Is the move to net zero leading to changes in the way you live your life as well as your business? If so, how?
I believe the move to Net Zero and decarbonization has already and will continue to change the way the entire financial industry operates and feel lucky to have a front-row seat and be able to influence the transition. Although we still have a long way to go, there has been progress – over the last five years (last three in particular), I have observed ESG/Sustainability investing move from “niche” or “passing fad” to mainstream. The focus has shifted from traditional alpha to alpha plus, not only financial alpha, but sustainable and impact alpha as well. We have seen a massive explosion in data, commitments, policy, engagement and proxy filings around climate. While historically the focus has been around climate risk, going forward I expect it shift to innovation as well as to incorporate the Just Transition.
Also, sustainability has become key to attracting and retaining workers for corporations. We are in a period of time where human capital is the ultimate scare resource and workers are increasingly wanting to work for a company that is a good corporate citizen – as a millennial, my friends and peers are increasingly conscious of not only our personal sustainability, but working for companies that have value alignment (not one of them is lining up to work for a large polluter)!