The CEO of banking giant Credit Suisse told CNBC that the coronavirus pandemic has “significantly accelerated the trend toward ESG and sustainability” and sought to highlight investment opportunities within the overall space.
Credit Suisse CEO says sustainable investing no longer means lower returns
Thomas Gottstein, speaking to CNBC’s Geoff Cutmore, said, “The demand we see – both from our private clients, but also from institutional clients – is steadily increasing for ESG compatible products.” “It’s also clearly seen as an opportunity to improve returns.”
“There is no contradiction between sustainable investment and sustainable return, in fact the opposite,” Gottstein said. “In many cases, permanent investments are actually higher returns than non-durable investments.”
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There seems to be a change happening. In February, the Morgan Stanley Institute for Sustainable Investing found that, in 2020, “U.S. sustainable equity funds outperformed their traditional peer funds by an average total return of 4.3 percentage points.”
It also noted, “U.S. durable bond funds outperformed their traditional peer funds by an average return of 0.9 percentage points.”
In a statement released at the time, Audrey Choi, Morgan Stanley’s chief sustainability officer and CEO of its Institute for Sustainable Investing, said: “Sustainable funds’ strong exposure to and performance of returns during an exceptionally turbulent year is a persistent misconception. erases that sustainable investing requires performance sacrifices.”
The growing influence of ESG
The word ESG stands for Environmental, Social and Governance. This has become a hot topic in recent years, with a wide range of companies attempting to boost their credibility by developing business practices that run along ESG-linked criteria.
In his interview with CNBC, Gottstein described sustainability and the ESG movement as “global”.
As an institution, Credit Suisse places ESG integration within its “sustainable investment spectrum”, which also includes thematic investments, impact investing and exclusions.
The bank describes the latter as a strategy in which investors “can choose to actively exclude sectors or companies in contentious business areas – for example, arms or tobacco.”
Regulation and carbon tax
Gottstein was also asked whether he thought heavy emitting and extractive industries should pay higher costs of capital, and whether he saw Credit Suisse’s role in imposing such penalties.
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“I think, to some extent, this is already happening,” he replied. “I think companies behind the curve in terms of sustainability, they are already forced to pay higher cost of capital, whether it is for cost of debt, whether it is cost of equity,” he said.
“So I’m not a big fan of the higher cost of capital through regulation and external, or unnaturally, or regulatory measures, as it is happening.”
The European Commission, the executive arm of the European Union, is expected to plan a carbon limit adjustment mechanism in the near future. According to the commission, it would impose a “carbon price on the import of certain goods from outside the European Union”.
On his view of introducing a carbon tax for imports on the subject of Europe and using the tax system as an attempt to encourage change in behaviour, Gottstein cautioned.
“I’m not convinced about the carbon tax,” he said. “I think market forces are now so strong that I’m not sure it’s necessary, because investor demand is now so high toward sustainable products that there’s no need for a carbon tax in my view.”