Investment giant BlackRock announced today the publication of a new research paper, “Seeking outperformance through sustainable insights,” outlining how the use of emerging sustainability data and research can enable investors to identify sustainable business practices and business models, leading to investment outperformance.
According to BlackRock, the transition to a global net zero economy by 2050 – requiring capital investments estimated at between $50 – $100 trillion – will have major implications on asset prices, creating new investment opportunities and risks. The firm highlights a number of key ways that sustainability affects investment returns, including reductions in cost of capital for companies that are “climate-ready,” the use of new data sources and research to identify sustainable business practices, and the emerging intersection between factor investing and sustainable investing as capital shifts into sustainable firms.
One of the key phenomena discussed in the report is the emergence over the past few years of hundreds, or even thousands, of ESG-related datapoints on companies. While the proliferation of ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. More data has created new opportunities to examine a company’s sustainability profile and activities, however, they also present new challenges, including determining materiality to financial performance and discerning comparability between different standards and methodologies. According to BlackRock, these challenges can be viewed as market inefficiencies, creating opportunities through differentiated insights and investment research.
Rich Kushel, Senior Managing Director and Head of the Portfolio Management Group at BlackRock, said:
“We’ve been clear about our conviction that sustainability criteria has material impacts on investment returns, and our latest research builds on our thesis. The key to active management is our ability to consistently identify companies and data points that can help us generate investment alpha. The incorporation of sustainability analytics is an increasingly important component to assessing the potential of companies and technologies as sources of return.”
BlackRock outlined several of the non-traditional information sources the firm uses in order to identify sustainable behaviors and activities that may help generate outperformance, including gathering information from conference calls, we postings, and government reports, and quantifying companies’ green and clean energy patents. Other opportunities highlighted include identifying technologies and business models that can participate in the low carbon economy transition, particularly in industries such as clean energy and microfinancing.
According to BlackRock, the firm harnesses these active management insights in the creation of its sustainable investment opportunities for clients. The firm manages over $400 billion in its sustainable investment platform, and has set a target to grow this to $1 trillion over the next 10 years.
Becci McKinley-Rowe, Co-Head of Fundamental Equities at BlackRock said:
“As active, fundamental investors, we take the long view. Sustainability is about the future and companies that are forward looking and embrace best practices, have the potential to outperform in the long run. At the same time, we recognize clients need diverse and transparent product choices to achieve their sustainable investment goals, so we continue to innovate and expand our fundamental equity sustainability offerings, including the recent launch of our Core Sustainable range.”
Click here to access the BlackRock research paper.
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