IIC 2021: United Nations Special Envoy on Innovative Finance and Sustainable Investments by Hiro Mizuno

CFA Society India organized its annual marquee event “11^th India Investment Conference 2021 (IIC 2021)” with theme of “Confronting Disruption”. Hiro Mizuno gave a talk on United Nations Special Envoy on Innovative Finance and Sustainable Investments. The session was moderated by Narayan Ramachandran, wherein Hiro talked through “Innovative Finance and Sustainable Investment” & “Principle of Responsible Investing”. Below is an outline of that discussion along with the associated learnings.

Transfer of Power

We are seeing a transfer of power from institutions to retail clients. Retail investors are more informed, communicative and are more attacking than the big institutions. The power shift is really happening, and investment industry is no exception to it. Investment professionals will continue to be needed by clients. Now, just having privileged access to information or having more analytical resources around you or managing big capital is no longer good enough to add value or deal with your clients. As investment professionals, we need to make sure that we remain necessary and relevant in the future of capital market.

Universal Ownership & ESG in Investment Management Industry

Hiro says that he questioned himself and tried to bring in theories that he learnt as an investment professional to deliver better performance for GPIF. But managing relatively diverse US$ 1.6 trillion, he said that theories he learnt in his career weren’t helping. So, he came up with the idea of universal ownership.

He added that our professionalism used to be about the portfolio we are managing but we need to expand the boundary of responsibility beyond financial ownership. If you make money by investing in a company which creates a lot of negative externalities which would affect the whole system then in 10 years’ time, a part of your portfolio will end up paying for it.

Pay attention to how the portfolio you are managing is affecting the whole system or whole world and affects the long-term performance. Pay attention to outside of your portfolio or consequences of the business you are investing in, to the world and to the society and long-term performance and health of the capital market.

Future Investment Professional

Being a visiting faculty of many business schools and colleges, Hiro says that Investment Professionals are becoming less and less popular as they are only interested in making money and pay too little attention to the impact of investment decision. However, he also sees how fascinating those young business school students are towards ESG & sustainability. GPIF is now being taught by Harvard Business School (HBS) professor as a mandatory case of ESG. It’s also being taught in other major business schools.

ESG is becoming one of the things that adds a bit more perspective to what we are doing. ESG isn’t about hedging the risk and managing the portfolio but probably it will have significant impact on how industry will be perceived in the society.

He wants that younger professionals continue to respect their business and also CEOs of asset management companies should consider ESG as essential and a condition precedent to the business. This is an area that needs continuous education.

Hiro’s Role as A Special Envoy to US for Innovative Finance and Sustainable Investment

Hiro, together with UN secretary general, is trying to promote more financing behind business and government to achieve sustainable economy and sustainable business. UN sustainable development goals have 17 goals and one of those goals which probably has the most overarching effect is the climate change and India is the 3^rd largest emitter of CO2 and is a growing country. How Indian businessmen will build their business and how the Indian government will build their infrastructure will critically affect where the world is going.

Globally, we are talking about roles & responsibilities of finance industry and asset management industry to accelerate the world transition to the sustainable economy and how as an Indian investment professional and business you are investing and the government you are working with will make a significant impact. Pay attention to what kind of discussion we are having at the political leaders’ meeting. President Biden is very keen to promote green economy and Japanese Prime Minister is also committed to 2050 net zero target of carbon emission. It’s going to be a big topic!

Concluding Note

ESG is new and probably doesn’t fit perfectly well in the current investment analysis and decision making but it’s going to be big and critical. CFA Institute is working towards it and CFA charterholders, already in the field, should try and spend time to see what’s going on and how best they can contribute for future survivability of financial and asset management industry.