Sustainability sets the tone
Smoking on the train, cocktails served with disposable straws, plastic carrier bags in shops..... It feels like a distant past, but it is anything but. Sustainability is increasingly becoming the norm and imposing its stamp on our society. And that is reflected in all your investments.
Socially responsible investment funds
Socially responsible investment funds are often excellent indicators for gauging which way our society is headed. There are also precursors for investments. When these funds exclude certain activities, conventional investments generally follow suit with a slight delay.
“Take the tobacco industry, for example”, says Natacha Danckers, Corporate Sustainability Officer at KBC Group. “The harmful effects of tobacco became ever clearer over recent decades, and pushed it higher and higher up the societal agenda.
It is hard to imagine today that it took until 2011 for a general ban to be introduced on smoking in hospitality venues, public places and the workplace. Today it’s something we take for granted.”
Tobacco showed the way
As a result of the harmful effects, sustainable and socially responsible investment funds long ago excluded the tobacco industry from their investment universe. Over recent years that policy has filtered through to conventional investments.
Natacha Danckers gives an example from her own experience: “KBC stopped investing in the tobacco industry in 2019, and signed the Tobacco-Free Finance Pledge. This means that we apply the strictest policy criteria to financing and insuring tobacco-related businesses.
We have also broadened our exclusion policy for the tobacco industry for loans, insurance products and sustainable investments to KBC Asset Management's conventional investment funds and to KBC’s own investment portfolio.”
According to Natacha Danckers, this has led the sector to be regarded as a ‘persona non grata’. “And not just at KBC”, she adds. “Neither financial institutions nor citizens are prepared to tolerate harmful activities any longer. And of course that has an impact on the stock market valuation of those companies.”
Coal next in line
It now seems that other sectors of industry will also (be forced to) follow the path taken by the tobacco industry. Steven Vermander, sector analyst at KBC Asset Management, thinks the coal industry will be next in line. “It's the first fossil fuel that is being excluded by more and more funds”, he says. “This reflects the fact that burning coal has a very negative impact on both the climate and human health.
KBC has been developing a policy since 2016 which imposes restrictions around the financing of coal-related activities, and since this year coal has been excluded from all our investment funds. In the sustainable and socially responsible funds, including those following the ‘Best-in-Class’ approach, we now in fact only include renewable, low-carbon fuels and exclude all fossil fuels entirely.”
It is not just financial institutions that have an impact: governments also play a very important role. “Europe is taking a clear lead”, says Natacha Danckers. “The Green Deal is intended to make Europe the first climate-neutral continent in the world by 2050. Many other countries are also developing stricter ambitions and formulating targets.
This legislative framework is not only pushing companies in the right direction, but will also require them to compile more accurate reports on their negative impact and what measures they are taking to mitigate it. Good, independent control mechanisms are therefore important.”
The government plays a very important role. Europe is aiming to become the first climate-neutral continent in the world by 2050. That pushes companies in the right direction and forces them to report on their negative impact and what measures they are taking to mitigate it.
Natacha Danckers, Corporate Sustainability Officer at KBC Group
Consumer behaviour naturally also plays a role. If manufacturers of certain products or technologies are no longer able to find customers, they will be forced to embrace sustainability in order to secure their continued existence. Together, therefore, we have a great many tools at our disposal to force companies to move in a certain direction.
Labels provide transparency
But it is not always easy to see the sustainable trees through the woods. A system of independent labels can help here. They act as a check on companies which engage and provide evidence that a company has achieved a certain standard. “KBC is also signing up to these labels”, says Steven Vermander.
“For example, we’ve endorsed the Towards Sustainability label since its launch; it’s an independent quality standard for sustainable and socially responsible financial products.
All KBC’s sustainable and socially responsible funds are proud to contribute to that label.”
According to Steven Vermander, the label is intended to give confidence to potential investors that the financial product is managed with sustainability in mind and is not exposed to non-sustainable practices. Independent oversight by the Central Labelling Agency (CLA) protects the integrity of the quality standard and the label, and will help guide future developments.
“Finally, there’s a biannual review round”, explains Steven Vermander, focusing on one aspect for improvement. “That ensures that the criteria and standards for this label are continually refined. For example, the Towards Sustainability label imposes ever more stringent demands on the phasing out of fossil fuels. However, KBC already meets the most stringent standards in this regard.”
This indicates that sustainability is a dynamic concept. Every methodology is subject to revision and increasingly strict norms. “That applies for us, too”, says Steven Vermander. “That way, we are always trying to stay one step ahead.”
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This article is informational only and should not be considered investment advice.