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The CEO of banking giant Credit Suisse told CNBC that the coronavirus pandemic has “greatly accelerated the trend towards ESG and sustainability” and sought to highlight investment opportunity across the board.
“The demand we are seeing – from both our residential and institutional customers – for ESG-compliant products is growing all the time,” said Thomas Gottstein, who spoke with CNBC’s Geoff Cutmore. “It’s also clearly seen as an opportunity to improve returns.”
“Sustainable investments and sustainable returns are not a contradiction in terms, on the contrary,” added Gottstein. “In many cases, sustainable investments even bring a higher return than non-sustainable investments.”
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There seems to be a shift going on. In February, the Morgan Stanley Institute for Sustainable Investing found that in 2020 “US sustainable equity funds outperformed their traditional benchmark funds by an average total return of 4.3 percentage points”.
“Sustainable US bond funds outperformed their traditional benchmark funds by an average total return of 0.9 percentage points,” it said.
In a statement released at the time, Audrey Choi, Chief Sustainability Officer of Morgan Stanley and CEO of the Institute for Sustainable Investing, said: “The strong risk and return performance of sustainable funds in an exceptionally turbulent year further undermines the persistent misconception that sustainable investing requires sacrifice. “
The growing influence of ESG
The term ESG stands for environment, social and governance. It has become a hot topic in recent years as a multitude of companies seek to improve their credentials by developing business practices that align with ESG-related criteria.
In his interview with CNBC, Gottstein described the sustainability and ESG movement as “global”.
As an institution, Credit Suisse has placed ESG integration in its “spectrum for sustainable investments”, which also includes thematic investments, impact investing and exclusion.
The bank describes the latter as an indication of a strategy in which investors “can decide to actively exclude sectors or companies in controversial business areas – for example weapons or tobacco”.
Regulation and CO2 taxes
Gottstein was also asked if he believed heavy emitters and extractive industries would have to pay higher capital costs and if he saw Credit Suisse having a role in enforcing such a penalty.
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“I think it’s already happening to a certain extent,” he replied. “I think companies that are lagging behind the curve in terms of sustainability are already being forced to pay higher costs of capital, be it for borrowing costs or cost of equity,” he added.
“So I’m not a big fan of regulation and enforce higher capital costs from the outside or unnaturally or through regulatory measures because it happens.”
The EU executive, the European Commission, is expected to present plans for a mechanism to adjust CO2 limits in the near future. According to the Commission, this would set “a carbon price for certain goods imported from outside the EU”.
Gottstein was cautious about the introduction of a carbon tax in Europe on imports and his view of using the tax system to encourage behavior change.
“I’m not convinced of the CO2 tax,” he said. “I think market forces are so strong now that I’m not sure if this is necessary because investor demand is now so focused on sustainable products that in my view there is no need for a carbon tax.”