What caught our eye this week
Bridging the gap between sustainability and finance

What caught our eye this week

Here are three stories that we found particularly interesting this week and why. We also give our lateral thought on each one.

  • Do low emission zones actually work?
  • How should asset managers think about the non-financial preferences of their clients?
  • Have you considered hiring a CEO from a not-for-profit?

Do low emission zones actually work?

We know they should have wider social benefits, but is this supported by evidence?

Low emission zones (LEZs) and congestion charging zones (CCZs) have been implemented in several cities globally. They idea is to reduce traffic in dense urban areas. They are often controversial and sometimes expensive. More than 320 zones are now operating across the UK, Europe and Japan.

A new review, published in the The Lancet, has gathered research on schemes in cities around the world. Five of the eight LEZ studies showed a clear reduction in heart and circulatory problems when an LEZ was implemented. These included fewer admissions to hospital, fewer deaths from heart attacks and strokes, and fewer people with blood pressure problems.

But, in some cases the evidence is less clear. Five studies, again covering zones in Germany, Japan and the UK, looked at breathing and lung problems. You would think that this would be an obvious win. But, only two studies found improvements and the remainder showed no definite result.

Clearly more research is needed. Some of the benefits will be very long term, and some LEZ’s may need design refinements.

Transportation, in particular road transportation, is a major man-made source of air pollution. Air pollution can impact health and ultimately productivity. We discussed that in a previous Quick Insight.

Link to blog 👇🏾

Quick Insight: air pollution and passenger vehicles
With motorised vehicles the focus is often on reducing their carbon footprint by changing how they are powered. But what about their impact on air pollution?

(Health and Wellness, Greener Energy Applications, Premium and Professional)

How should asset managers think about the non-financial preferences of their clients?

If you are an asset manager, how should you think about the non financial preferences of your clients? Lots of people say you shouldn’t - asset managers should just worry about delivering financial return, and they should let their clients sort out the other stuff. But is that really right.

After all many so called non financial issues turn out to have financial implications. And what do you do about issues that have both financial and societal dimensions?

One solution (a pretty obvious one) is to ask your clients. Unfortunately it’s not straight forward. Netspar have been using what are known as stated and revealed preferences to help answer this.

It turns out that the vast majority of participants were twice as likely to invest sustainably, and women and younger people wanted to invest more, and older people and higher earners invested less.

Understanding what people actually want and what they say they want can come down to the language that we use. In Sustainability, language and in particular, how we frame questions, can have important implications.

Links to blogs 👇🏾

Choose your words with care
Our choice of language can have important implications for how we think, react and problem solve. This crosses all disciplines from science, sociology, law, and pointedly, sustainability.

(Transitions / Human Rights, Free to read!)

Have you considered hiring a CEO from a not-for-profit?

Joachim Klement highlights research from Leo Liu (University of Technology Sydney) and colleagues that found that, whilst at the moment, only one in five CEOs in the US had not-for-profit experience before they became appointed as CEOs, that trend is growing fast.

This may be surprising to most. As Klement points out, there are differences in focus of a 'for-profit' and a 'not-for-profit' manager. The former typically focuses on maximising shareholder value; the former focuses on other stakeholders. He also highlights the differences between incentives with bonuses in the for-profit world typically being bigger motivators than for employees in the not-for-profit world.

However, Liu and team found no difference in the profitability or valuation of the companies managed by CEOs from a not-for-profit background and those from a for-profit background.

There was one important difference - how they managed stakeholders. Unsurprisingly, not-for-profit CEOs were better at managing the broad range of stakeholders: Glassdoor ratings were substantially better, ESG scores were higher and their companies filed green patents at a higher rate.

What we found interesting is that those improvements did not come at the expense of returns. Whilst impact investing does have an associated 'willingness to pay' for the social or environmental good achieved, that is arguably over a short time frame.

In fact impact investing has a return ripple that is expressed over the longer term.

Links to blogs 👇🏾

Quick Insight: the return ripple from impact investing
Impact investing will be an important driver of the sustainability transitions. ‘Doing well by doing good’ is a careful balance with potentially direct and immediate sacrifices of some return resulting in longer term benefits to society as a whole.

(Transitions / Human Rights, Premium and Professional)

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