Sustainable Investments: three proposals to the world of science

What more can science do to improve the quality of sustainable investments, making them even more attractive to investors? Fabio Pellizzari, Head of ESG Strategy and Development in Asset Management at Zürcher Kantonalbank, makes a number of proposals.

Fabio Pellizzari, Head of ESG Strategy and Development in Asset Management at Zürcher Kantonalbank, at the GRASFI Conference 2022 in Zurich.

Sustainable investment is in vogue. Growth rates are in double digits and more and more asset managers are jumping on the bandwagon. As a result, the global share of sustainably managed investments has increased to around 35 trillion dollars in the space of only a few years. This represents almost one-third of all assets under management (data correct in 2020).

At the same time, the world of science has also addressed the topic of sustainable investment and published numerous articles along the way. To academia's credit, for example, it has demonstrated that sustainable investment does not lead to lower returns compared to conventional investment.

In his opening speech at this year’s GRASFI Conference in Zurich, Fabio Pellizzari, Head of ESG Strategy and Development in Asset Management at Zürcher Kantonalbank hopes that the following three aspects will be taken into account in the near future:

  1. Form of scientific works and access to research data:
    Research should not just be produced in traditional paper form. Asset managers are primarily interested in up-to-date global, sectoral, industry and issuer-specific sustainability data, that they can obtain at any time through interfaces to the relevant databases. This would make the work of asset managers significantly more efficient and effective, and also motivate them to co-finance high-quality research.
  2. High demand for sustainability data from SMEs:
    A valid ESG assessment of companies (i.e. their Environmental, Social and corporate Governance) requires reliable data. The ESG data situation for large businesses is now quite good. The challenge, however, lies in assessing the sustainability of the countless small and medium-sized businesses in countries where regulators do not require ESG reporting.
  3. Increasing the data quality of scope 3 emissions sources:
    Scope 3 emissions sources include greenhouse gas emissions from the upstream and downstream activities of other companies. These include, for example, the CO2 equivalent emissions of purchased goods and services or those released by consumers from the use of the goods sold. From 2024, the European Union will require the integration of this scope 3 data into the sustainability reporting of every investment. However, the data quality is still questionable at this point in time. Most data is appraised by organisations or data providers in accordance with their own definitions. Pellizzari also fears problems with the duplication and even triplication of some datapoints. If scope 3 greenhouse gas emissions are inadvertently added to scope 1 and scope 2 greenhouse gas emissions, then scope 3 emissions will constitute around 80 percent of the total because of duplication. Simple addition does not therefore work.

    The efforts made by issuers and asset managers with regard to scope 1 and 2 emissions (see box below) is therefore diluted by the integration of poor-quality scope 3 emissions data. "In view of the looming consequences of climate change, it is important to work together with the scientific community and international policymakers to promote sector-specific scaling factors or other concepts in order to cope with the integration of scope 3 emissions data as quickly and as best as possible," says Pellizzari.

Scope 1, 2 & 3

The categorisation of greenhouse gas (GHG) emissions into scope 1, 2 or 3 is based on the Greenhouse Gas Protocol (GHG Protocol). The aim is to measure and document the greenhouse gas emissions generated over the entire life cycle of a product or service (from the extraction of raw materials to the disposal of a product).

Scope 1 concerns the emission of greenhouse gases by the company itself

Scope 2 concerns greenhouse gas emissions from purchased energy

Scope 3 concerns greenhouse gas emissions in the upstream and downstream supply chains