Posted: 02 May 2022 4 min.

Creating sustainable value with the right investments

Emne: Economics

Covid. War. Inflation. The crises are queuing up and it feels like the world has never faced this many crises at the same time. All the while, we are facing one all-encompassing global crisis: the climate crisis. This calls for an acceleration of the sustainable transformation of our society by making investments a catalyst for sustainable value creation.

The UN Intergovernmental Panel on Climate Change (IPCC), which is responsible for assessing the science related to climate change, recently released the last of three instalments of its sixth assessment report. Under more normal circumstances an IPCC report would cause major headlines in the media and occupy newspaper frontpages, but this time the report gained less attention due to the horrifying war in Ukraine.

Although it is challenging to deal with several crises of this caliber simultaneously, reality is that the climate crisis cannot be put on hold. 2021 was the year in which we globally emitted the most CO2 in world history, and just a few weeks ago Denmark had used up our quota for the whole year.

The new IPCC report provides a complete picture of the causes, consequences, and solutions to human-induced climate change. While the previous two reports focused on the physical science of climate change and societies and ecosystems’ capacities to adapt, this report examines how well (or not) we are progressing on alleviating climate change and what can be done. Unfortunately, the conclusions are so grave that they do constitute frontpage news: we are set to overshoot 1.5 degree; coal, oil and gas infrastructure must go; carbon dioxide removal is unavoidable, and lifestyle change is part of the solution. On the more positive side, the report also concludes that solutions are getting cheaper.

Fully recognizing the need for the solutions listed by the IPCC, I am convinced that another powerful way to accelerate a sustainable transformation is by making investments a catalyst for sustainable value creation. By doing so, we can create both social and environmental value in addition to financial value, which we for so many years have focused too narrowly on.

I recently had a great discussion with Sarah Hempel in Deloitte’s webinar series Green Conversations on this topic. Sarah is head of sustainability at Axcel, Denmark’s largest private equity fund with a committed capital of about EUR 2.5 bn, and she is managing their ambitious effort to integrate sustainability in everything Axcel does. As a private equity fund, Axcel is focused on integrating ESG (environment, social, governance) in their investment process. 

Why does a private equity fund now place sustainability at the core of their investment decisions? According to Sarah the answer is twofold. First, sustainability affects any company’s performance, valuation, and return on investments. There is thus a need for all investors to understand how sustainability affects a company before making an investment.

Second, investors have a responsibility to understand, mitigate, and prevent adverse impacts on environment and society and contribute to positive impacts, as it is fundamentally part of their license to operate. Consequently, businesses increasingly consider sustainability as the key to unlock new business opportunities rather than seeing it as a risk or compliance issue only. This development is also highly driven by stakeholders who reward such behavior. 

No doubt, sustainability is no longer just an ethical, financial, environmental, or social matter, it is about security policy and geopolitics. The current record high inflation rates in the Western world largely driven by skyrocketing energy prices make the transition to renewable energy sources even more urgent. The war causes European countries to provide housing, school, medical help etc. to Ukrainian immigrants, and to raise their defense budgets to complete new levels. While this development is set to hurt our economies and welfare, investors should seize to use this situation as an opportunity to make the needed investments in sustainably run businesses. 

No matter what happens in the world, we ought to do everything we can to mitigate climate change and create a sustainable future for the generations to come. That is why we must handle the crises simultaneously and intelligently seek to make investments a catalyst for sustainable value creation wherever we can. 

Forfatter spotlight

Majbritt Skov

Majbritt Skov

Partner

Spørg mig om: Samfundsøkonomi, økonomisk modellering og ESG i et kommercielt perspektiv Majbritt er partner i Deloitte og leder af Deloitte Economics. Hun har mere end 15 års erfaring med udarbejdelse af mikro- og makroøkonomiske analyser for både den private og offentlige sektor. Majbritt er en efterspurgt økonomisk rådgiver i strategiske beslutningsprocesser om optimering og effektivisering. Majbritt er ekspert i at beregne organisationers impact og kan sætte kroner og ører på bæredygtighed. Ydermere bistår hun virksomheder og investorer med at værdisætte ESG-relaterede risici og muligheder i både et kommercielt og samfundsøkonomisk perspektiv - blandt andet i relation til M&A. Besøg Majbritts blog her Ask me about: Socio-economic impact, economic modelling and ESG Majbritt is a partner in Deloitte and Head of Deloitte Economics. She has more than 15 years of experience with conducting micro and microeconomic analyses for both private and public sector clients. Majbritt is an experienced economic advisor in strategic decision-making processes focusing on optimization and effectivization. She is an expert in the valuation of non-market goods and supports companies and investors in assessing their impact and the value of sustainability and ESG-related risks and opportunities from both a commercial and societal perspective - in relation to M&A amongst others. Visit Majbritt's blog here

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