James Gard: Welcome to Morningstar. I'm James Gard. Today, with me is Thijs Huurdeman. He is an analyst at Sustainalytics. Today, we're going to be talking about Earth Day. So, the theme of this year's Earth Day is "Invest in Our Planet". Thijs, how would you describe this as a theme?
Thijs Huurdeman: So, when it comes to investing in our planet, there's different actors that can play a role. There's the business side of things. There's governments, the regulation. And there's us as consumers and individuals that each have a role to play regarding this theme of investing in our planet.
Gard: So, what can we do as consumers to help save the planet and to improve what companies are doing?
Huurdeman: So, as a consumer, we can choose to buy or not buy things from certain companies and certain brands based on their sustainability performance, for example. So, in that sense, we can vote with our wallet. I mean, as individuals, we are not just consumers, right? We are all also in a way investors ourselves by having, for instance, a savings account, contributing to a pension fund, or even as a retail investor, and then, as an individual, you can make certain choices. You can choose to keep a savings account with a bank that has sustainable standards, or you can engage with your pension funds regarding their investments. And as a retail investor, you can make certain choices when it comes to your portfolio.
Gard: So, you also talked earlier about the role of government and regulation in Earth Day. Could you expand on that a bit then please? Thanks.
Huurdeman: Governments, obviously, have a big role to play. There's the business side of things, but also, like businesses, also governments need to innovate to help support the transfer towards a greener economy. And there are already a few positive developments going on, such as the EU Sustainable Finance Disclosure Regulation, but also regulation regarding, for example, due diligence in the supply chain, or what is known as the right to repair. But at the same time, there's also a large amount of government sponsoring towards the fossil fuel industry going on to the tune of US$10 million every minute, which adds up to US$6 trillion on an annual basis. And this is a statistic coming from the International Monetary Fund. So, obviously, such funding needs to be redirected towards more sustainable alternatives if governments are serious about their responsibility and their ambitions towards a greener economy.
Gard: So, you're saying that the governments is giving a sort of mixed message there. They're talking a good game about environmental objectives, but the money is actually heading to the wrong places in terms of investment and sort of initiatives like that?
Huurdeman: Yeah, exactly. Yeah.
Gard: So, you're also going to talk about the role of business in environmental improvement?
Huurdeman: Yeah. So, obviously, business has a large impact on all of us but also on the planet, right? So, it can have an impact on, and has had an impact on issues such as climate change, but also resources scarcity and the protection of natural habitats. When you talk about responsible business, there's the concept of environmental, social and governance, or ESG, which is a concept that is currently very much debated. Now, people are questioning the merits of ESG. It's been around for, I'd say, a little under 20 years or so. I mean, we're still in danger of exceeding the 1.5 or the 2 degrees global warming threshold, despite all the ESG efforts that are being made. And you could wonder what the situation will be without ESG investing. So, it might be even more dire without the concept of ESG. And for better or worse, there's currently US$30 trillion assets under management in sustainable investing. So, that's a lot of money. And in the end, the concept is all about raising the cost of capital for those firms with negative impact and increasing access to capital for those companies that have a positive impact.
Gard: So, it sounds like things are moving in the right direction, but there's no room for complacency in terms of saving the planet. I mean, we last spoke a year ago on Earth Day last year. And are there things that you could see that happened in the last year that are worthy of sort of comment in terms of positive factors or negative factors?
Huurdeman: So, last year, the focus was more on deforestation and the issue of biodiversity. And that is an issue that's increasingly being picked up by the business sector, by investors, and also, by governments in the sense that some governments are now exploring regulation that looks at supply chain due diligence, for example, on the issue of deforestation and biodiversity. So, there's positive developments, but it's painstakingly slow, I would say.
Gard: Sure. All that makes absolute sense. Well, thanks for your time today, Thijs. And for Morningstar, I've been James Gard.
