Saving the World

Green Investment

A mere fraction of the wealth of the super-rich would be enough to make our economy more sustainable – assuming it’s invested the right way.

Thomas Gull

Investing only a fraction of the world’s wealth in sustainable assets would solve many global issues. (Video: UZH Communications / Multimedia and E-Learning Services)

 

“Sustainable investments can save the world,” says Falko Paetzold, “but it’s complicated.” Falko Paetzold ought to know. He heads up the University of Zurich’s Center for Sustainable Finance and Private Wealth (CSP), which investigates ways of making global financial flows more sustainable. This is no easy feat, considering that the world’s capital, like its natural watercourses, flows through deeply entrenched paths to the same old places.

Ignorant bank advisors

That must, and can, change, shows the CSP’s research. “Most of the super-rich are interested in investing sustainably,” says Paetzold, referring to surveys and his own research, “but less than 10 percent are doing so at the moment.” According to the UZH economist, this is because many investors don’t know how they can invest their wealth in a sustainable manner. On the one hand, the responsibility for this lies with them, but the banks’ advisors are also to blame.  “Advisors often have conflicting economic goals: They’re supposed to generate high fees and serve many clients,” criticizes Paetzold, “there’s no place for sustainable investments here, since explaining them to their clients takes time and knowledge.” Both of which bank advisors often lack. What’s more, starting this conversation with clients could lead to them asking questions about the bank’s fees and its transparency – topics that most advisors would rather avoid. As a result, sustainable investments often go unmentioned, says Paetzold.

The crazy thing is that investing only a fraction of the world’s wealth in sustainable assets would solve many global issues. According to estimates, it would take about USD 2.5 trillion to achieve the United Nation’s Sustainable Development Goals by 2030. On the other side, the world’s billionaires, who make up 0.7 percent of the global population, control some USD 140 trillion, or half of all of the wealth in the world.

In other words, there is an enormous concentration of capital and power as well as a great interest in sustainability on one side. On the other, we have current and future environmental disasters, for which there are remedies, such as alternatives to meat or green energy sources, e.g. solar, wind or water power.

This is why the CSP directly targets the super-rich, offering workshops that show them how they can invest their wealth sustainably. This strategy has proved successful. The most recent workshop at Harvard University featured 33 participants with an average wealth of two billion US dollars. In many cases, participants are the heirs of rich families who want to do something meaningful with their resources and have to convince older family members who are still holding the reins.

The seminars of the CSP have three goals: Firstly, investors are shown how they can invest their wealth sustainably with maximum effect. Secondly, those taking part can exchange views and see that others are experiencing similar problems and resistance in their families. Finally, they learn how they can convince their family members and advisors to invest their capital in more sustainable assets.

Investing sustainably is profitable

But do sustainable investments turn a profit at all? Are they riskier than conventional investments? “If you think that sustainable means less profitable, you’re wrong,” says Paetzold unequivocally. Studies have shown that sustainable investing can yield equal or better results. And then there’s common sense: “Which company would you rather invest in: A company that squanders its resources, or one that handles its assets, its employees and the environment with care?” Which company is likely to be more successful and profitable in the medium and long term? “Running a business that is unsustainable often simply means that it’s wasteful with its resources,” says Paetzold. Conversely, this also means that a sustainable business can point to good management. “Investing sustainably often simply means not being foolish,” says Paetzold.

Needless to say, no one wants to be foolish. But avoiding foolishness requires a certain degree of knowledge and understanding of how things work. Besides advising the super-rich, the CSP also carries out basic research. For example, CSP researchers are investigating which investments are truly sustainable and which have the biggest effect, per dollar. In the end, capital is meant to have an impact, so what it is used for is crucial. It doesn’t make much sense, for example, to no longer invest in coal as long as others keep buying coal shares. Unless you’re an important investor and talk about it, like the Rockefeller family’s decision to withdraw all its investments from fossil fuel companies, which made the front page of the New York Times. Instead, investing in businesses that are attempting to solve sustainability issues and need funding to accomplish their goals can be highly effective.

Banks and their advisors are currently part of the problem, because they often aren’t doing enough to offer sustainable investment options to their clients. In future, they are expected to be a part of the solution. This is another aim the CSP wants to achieve by providing and approaching banks and advisors with the relevant information. “There’s a lot going on at the moment,” says Paetzold, “many banks are realizing that their clients want to invest sustainably and that this opens up new lines of business.” Paetzold hopes that in the future, sustainable investing will be a matter of course, and that anyone not wanting to do so will have to actively opt out – the exact opposite of the status quo.

We are all rich

But it’s not just billionaires who must become aware of the opportunities offered by sustainable investments, but all of us. “We must begin to understand that we are all rich,” says Paetzold. Anyone who has assets of around CHF 90,000, including in their pension fund, ranks among the wealthiest 10 percent in the world. With assets of CHF 860,000, you’re even part of the top 1 percent (house excluded). In other words, it’s up to us to do something. For example by demanding that our pension funds invest in sustainable assets. Or by asking our bank advisor whether our retirement savings are invested in funds that are sustainable. Or by actively using our voting rights as shareholders. Or by voting for political parties that are committed to sustainability.

There is plenty that we can do to redirect the flow of finances so that it contributes to a flourishing sustainable economy. It’s not as complicated as it may seem at first glance. Thinking and investing in sustainable ways should become as natural to us as buying organic apples, believes Paetzold. The CSP at UZH is working on spreading this idea across the globe.

 

Impactful Investing

The Center for Sustainable Finance and Private Wealth (CSP) is a research and training center at UZH’s Department of Banking and Finance. Founded in 2017, the CSP developed out of the “Impact Investing for the Next Generation” research and training program at the Harvard Kennedy School and the former Center for Microfinance at UZH. The center aims to investigate and move private wealth toward sustainable finance with the goal of promoting sustainable development. www.csp.uzh.ch

Thomas Gull, Editor UZH Magazin; English translation by Philip Isler

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