Perspective - Markets

How sustainable investing could calm our rising eco-anxiety

Increasing numbers of people feel overwhelmed by the challenge of climate change. Investing our money in a sustainable way could potentially boost our psychological well-being.

23.10.2019

Eco-anxiety, the chronic psychological fear of environmental meltdown, is on the rise, according to a 2016 report by the American Psychological Society. And with seemingly daily news reports about record-breaking temperatures, melting ice sheets and higher levels of greenhouse gases (GHGs), a rising toll on our mental health is being added to the physical implications of climate change.

As the number of people worrying about higher temperatures increases, so does our sense of helplessness. This is compounded as discouraging climate reports are published and global conferences on the issue fail to make any meaningful progress.

Events such as the wildfires in the Amazon rain forest are further accelerating the planet’s ecological decline and a feeling of loss and despair, particularly among younger people. Earlier this year, Brazil’s President Jair Bolsonaro encouraged agriculture and other industrial activity in the region, driving deforestation to record highs. Critics say that Bolsonaro’s government, which rejected a $20 million aid package from the G7, has been slow to act in limiting the fires.

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The upcoming trade agreement between the European Union and the four founding member countries of Mercosur (Argentina, Brazil, Paraguay and Uruguay) is a positive indicator of stronger economic collaboration between the two regions. However, while this is an opportunity to establish progressive environmental policies, the environmental implications of the deal remain to be seen.

The effects of eco-anxiety can be seen in the increasing numbers of people demonstrating for environmental causes (such as Extinction Rebellion) and voting for political parties with stronger environmental agendas. Sustainable, and particularly environmentally conscious, investing is on the rise. Global assets under management which follow broad sustainability-related investment criteria have grown by almost 35% to more than $30 trillion in 2018, from around $22 trillion in 2016, according to the 2018 Global Sustainable Investment Review . The driving force behind this increase has been demand from investors for their pension assets to be allocated in sustainable investments.

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Source: http://www.gsi-alliance.org/wp-content/uploads/2019/03/GSIR_Review2018.3.28.pdf

Most of these assets (around $20 trillion) apply a negative/exclusionary screening procedure, followed by ESG integration, for example the inclusion of financially-material ESG factors into the investment process. Sustainability-themed investing made up only around $1 trillion of the total amount.

Climate change is a complex issue. The implications go beyond the physical world and are now increasingly affecting the psychological wellbeing of many people. Protests and votes have long been the forces of change. However, the allocations of pension investments are often overlooked and yet are a significant driver of societal change.

We believe that allocating capital to products and services that help to mitigate and adapt to climate change will not only provide more attractive long-term returns, but also allow investors to better align their environmental values with their investment decisions.