The drive to protect the planet and to make sure human development is done in an environmentally sustainable way is already becoming one of the key issues of the 2020s.
In the latest World Economic Forum’s (WEF) Global Risks report, all five of the top long-term risks were related to the environment: extreme weather events; human-made environmental damage and disasters; failure to mitigate climate change; biodiversity loss and ecosystem collapse; and major natural disasters. The environment also featured high on the list of priorities at the recent WEF gathering in Davos.
It’s therefore no surprise that environmental sustainability has become a fundamental investment theme as well. According to Morningstar, net inflows into sustainable investment funds in the US almost quadrupled in 2019, to US$20.6bn. The trend is likely to continue in the coming years, as investors demand that those who manage their money ask tough questions of the companies they invest in, concerning their impact on the environment.
The evidence moreover shows that this focus on environmental, social and governance (ESG) factors has been good for returns. A Barron’s survey showed that 189 actively managed funds in the US that ranked “high” or “above average” on ESG criteria returned an average 30% in 2019 – just shy of the S&P 500 total return for the year – while 41% of the funds beat the S&P 500.
Given these returns, there has understandably been a call for the market to introduce investment products that contribute to environmental sustainability.
“Investors want to see greater sophistication and flexibility from their investments to meet their specific return goals. They also want those investments to have an impact on creating a better world which aligns with Investec’s commitment to support the climate transition and contribute to the United Nations Sustainable Development Goals,” says Sonia Lynch of structured products at Investec.
Indices like the Euronext CDP Environment World EW Index provide a benchmark from which to develop the right investment products for an environmentally aware market.
The Index is a market-leading benchmark that identifies the top 40 global firms according to their global environmental rating, out of a universe of the 400 largest European and North American companies.
“80% of the stocks included in the Index are also in the S&P 500 and Eurostoxx50 indices – making it a truly blue chip index,” Lynch points out. “There’s also a strong correlation (83%) with the performance of the MSCI World Index.”
To meet this demand, Investec has launched South Africa’s first environmental-themed structured product, the Investec Environmental World Index Autocall. The investment contains the unique features of an Autocall structure, with returns linked to the Euronext CDP Environment World EW Index.
Looking at the Autocall itself, Andri Joubert of Investec structured products explains that it’s a rand-denominated investment of up to five years, with call dates at the end of years three, four or five, should the underlying index be at or above its starting level on those dates. The Autocall will pay out a return of 25% per annum (cumulative, but not compounded) should it call on any of those dates.
Investors also have their entire upfront investment protected should the index fall over the period, provided it falls no more than 40%. The minimum investment is R100 000 and the Investec Environment World Index Autocall is issued by Investec Bank*.
“We believe the Investec Environmental World Index Autocall should have broad appeal across the private investor spectrum,” says Joubert.
“Our analysis shows that the twin goals of having a positive impact on the environment while enjoying enhanced returns, are shared by Baby Boomer, Generation Xer and Millennial alike.”
*Please note that this is not a comprehensive description of the features of the Investec Environment World Index Autocall. For more information, please go to www.Investec.com/autocall