A sustainable future for ESG investing, by Todd Hedtke, Chief Investment Officer, Allianz Investment Management LLC
If I were writing the 2018 version of this article, I’m not certain that ESG (Environmental, Social and Governance) investing would be the main subject. Looking ahead to 2019, however, ESG is the number-one trend I am seeing around all corners of investing. In fact, I can’t go to an investment conference and not see ESG as a core tenant of the event.
This newfound interest in ESG investing is being driven by a number of factors.
First and foremost is a belief that ESG investing is going to drive “outperformance.” While I don’t subscribe to that notion holistically, I do believe responsible investing will win over longer investment horizons.
Another factor is demographic changes, which are having a significant effect on how all investment opportunities are now being evaluated. The millennial generation, which is the largest generation we’ve ever had in terms of size, is the main catalyst behind this trend. According to the Institute for Sustainable Investing's report “2017 Sustainable Signals” from Morgan Stanely, 86% of millennial investors said they are interested in sustainable investing. While it’s not millennials alone driving interest in ESG, they are probably 10 points ahead of the average investor.
At Allianz Investment Management LLC, a number of pillars help guide our investment team in their decision-making. Some include exclusions that restrict us from investing in certain sectors like coal-based businesses, and also guidelines on impact investing, which involves looking for investment opportunities that offer solutions to challenges such as climate change or poverty.
On a global basis, we’ve invested more than $5 billion in renewable energy, primarily in the solar and wind space. We’ve invested $2.5 billion in green bonds, and another $8.8 billion in green financing for green buildings.
On a local basis, we’ve done more than $1.5 billion in infrastructure projects to support renewable energy and we’ve also done a lot in the tax credit and social housing investment space. We’ve invested $350 million in low-income housing tax credit investments across 250 properties in almost every state.
Another pillar that is becoming increasingly important as we consider investment opportunities is engagement. This includes both engaging with companies that we’ve already invested in or ones that we are looking at investing in sometime in the future. Our ESG criteria can help dictate how we engage with different companies, so if they have challenges in one of these areas, we can encourage them to make adjustments. That’s a pretty strong message that can help us advance the benefits that ESG investing brings to society.
As a massive global entity in insurance, investing, and social engagement overall, we believe Allianz SE can be a leader in the ESG investing community and collaborate with other like-minded companies to make a difference. As a corporate citizen, we feel we have a social responsibility to move society in a certain direction.
I truly believe ESG investing is a trend that will not be going away – in fact, it’s just beginning. From a global standpoint, Allianz SE has a dedicated mission to make this not just part of our investment strategy, but our entire insurance philosophy, and a driving factor behind our corporate citizenship.