Sovereign wealth funds ‘can lead the way on sustainability’

SINGAPORE — As major investors with significant pools of money, sovereign wealth funds (SWFs) can lead the drive to value nature in their investment policies. Citizens could also engage funds that invest public money to ask, for instance, how environmental, social and governance issues factor in their investment decisions.

These suggestions surfaced yesterday at a discussion on how financial-service providers can increase sustainability in their sector. SWFs can lead by example, said panellists at the Responsible Business Forum’s financial services working group.

Such a discussion is taking place in Norway, noted Mr Benjamin McCarron, a former fund manager and Managing Director of a Singapore-based research and engagement firm focused on responsible investment.

Norway’s US$810 billion (S$1.01 trillion) sovereign wealth fund has traditionally banned investment in industries such as tobacco and nuclear arms, but is considering changing its approach to one of engaging companies it invests in, and including sustainability criteria in valuations of the companies.

Asian SWFs have, in general, shown “little movement” on environment, social and governance issues, he said.

SWFs can make an impact by investing in projects with a strong social purpose, such as infrastructure or clean technology, said Mr McCarron.

Investing with an environmental and social conscience could mean avoiding a company that engages in deforestation, one with a large, unmitigated carbon footprint or one with poor water stewardship, said Ms Jeanne Stampe, Asia Finance and Commodities Specialist for environmental group WWF International.

An example of poor water stewardship could involve a consumer-goods company operating in water-stressed areas without taking river drainage systems into account or disposing of waste water properly.

“The finance sector is a key player in driving sustainability in business, given banks and investors’ ability to link the cost and access of capital to sustainability standards,” she said. Consumers can get involved by finding out how their banks are investing funds, she added.

At the two-day forum at Marina Bay Sands, a project to develop a framework for valuing “natural capital” in business decision-making was launched. Such a framework will allow damages from pollution, land conversion and other activities to be priced.

The forum ended yesterday with working groups for other sectors, such as palm oil and energy, stating the important role of governments.

Policies could help increase adoption of low-carbon technology and energy-efficiency, and lawmakers should also avoid counter-productive intervention when it comes to palm oil.

For instance, the industry-led Roundtable on Sustainable Palm Oil requires members to preserve certain types of land, but companies may then find those concessions with unconverted areas taken back by the government in Indonesia, said palm oil working group Chairman Ken Richards of the National University of Singapore.