The CEO of banking giant Credit Suisse told CNBC that the coronavirus pandemic had “substantially accelerated the trend towards ESG and sustainability” and sought to highlight the investment opportunity within the overall space.
“The demand that we see — both from our private clients, but also institutional clients — for ESG compatible products is ever increasing,” Thomas Gottstein, who was speaking to CNBC’s Geoff Cutmore, said. “It’s clearly seen as, also, an opportunity to improve returns.”
“There is no contradiction of sustainable investments and sustainable returns, quite the opposite actually,” Gottstein added. “In many cases, sustainable investments are actually higher returning than non-sustainable investments.”
A shift does seem to be taking place. In February, the Morgan Stanley Institute for Sustainable Investing found that, in 2020, “U.S. sustainable equity funds outperformed their traditional peer funds by a median total return of 4.3 percentage points.”
“U.S. sustainable bond funds outperformed their traditional peer funds by a median total return of 0.9 percentage points,” it also noted.
In a statement issued at the time, Audrey Choi, who is Morgan Stanley’s chief sustainability officer and CEO of its Institute for Sustainable Investing, said: “Sustainable funds’ strong risk and return performance during an exceptionally turbulent year further erodes the persistent misconception that sustainable investing requires a performance sacrifice.”
The growing influence of ESG
The term ESG stands for environmental, social and governance. It’s become a hot topic in recent years, with a wide range of companies attempting to boost their credentials by developing business practices that chime with ESG-linked criteria.
In his interview with CNBC, Gottstein described the sustainability and ESG movement as a “global” one.
As an institution, Credit Suisse has placed ESG integration within its “sustainable investing spectrum,” which also includes thematic investing, impact investing and exclusion.
The bank describes the latter as referring to a strategy whereby those investing “can choose to actively exclude sectors or companies in controversial business areas — for example, weapons or tobacco.”
Regulation and carbon taxes
Gottstein was also asked whether he felt heavy emitters and extractive industries should be paying a higher cost of capital, and if he saw Credit Suisse as having a role when it came to enforcing such a penalty.
“I think, to some extent, it’s already happening,” he replied. “I think companies that are behind the curve in terms of sustainability, they are already forced to pay higher cost of capital, be it for cost of debt, be it cost of equity,” he added.
“So I’m not a big fan of regulation and forcing externally, or unnaturally, or through regulatory measures, higher cost of capital, because it’s happening.”
The EU’s executive branch, the European Commission, is expected to lay out plans for a carbon border adjustment mechanism in the near future. According to the commission, this would put “a carbon price on imports of certain goods from outside the EU.”
On the subject of Europe introducing a carbon tax for imports, and his view on using the tax system as a way of trying to encourage a shift in behavior, Gottstein struck a note of caution.
“I am not convinced about the carbon tax,” he said. “I think the market forces are so strong now that I’m not sure it’s necessary, because the demand by investors is so much geared now towards sustainable products that there is no need for a carbon tax, in my view.”