The Sustainability Wave and
its Impact on the Markets

  • Jean Boivin, Head of the BlackRock Investment Institute

  • Sustainability is not a story about exclusion anymore. It's not only about managing risk of climate change that might affect your portfolio. It's also about riding a wave that should be a source of return in itself.

    What's causing the sustainability wave? I think at the root of it, it's the changing preference of society or a greater awareness of what the risk might entail going forward. This change in preferences means that different sectors of the economy or companies will be looked at differently. We would expect as a result, capital to move away from the less green part of the economy to the greener part of the economy. As these flows are happening, we would expect them to drive returns.

    The starting point of the discussion in the industry is based on three arguments. The first one is that if sustainability is important, it should be reflected already in the price of assets. The second is that if it's already in the price, then you need to detract from your return objectives in order to achieve these sustainable objectives. And the third tenet is that if in fact it's in the price, these risky investments should be providing you a greater compensation for holding that risk. So if something is more exposed to climate risk, you should be compensated more. We think that this is missing the point. The bigger point here is that it's not in the price.

    The bottom line is this a long-term phenomenon that is going to play over years and decades. Demand and capital reallocation are only starting and will be moving slowly over time. It means that we have now a new source of return across all asset classes and that will determine or change the way we should be building portfolios going forward