Funding a More Sustainable Future
Originally published on Principal.com
A generation ago, assessing a company’s potential was often confined to a review of its balance sheet.
Today, however, a company’s impact on the climate is often evaluated alongside profit—especially for institutions, organizations, and individuals making choices about where to spend and invest.
Surveys bear this out: 88% of institutional investors point to environmental, social, and governance (ESG) measures over financial metrics in their evaluation of companies.1 Seventy percent of investors in full- or part-time jobs would probably or definitely include sustainable funds in their 401(k)s if offered by their employers’ plans.2
Financial services has taken note: One-third of professionally managed U.S. assets was either in sustainable investments or tied to ESG practices,3 with assets set to surge from $35 trillion to $50 trillion in the next three years.4
“We’ve seen significant changes in public investor expectations on climate change over the last two years,” says Emily Foshag, portfolio manager at Principal®. “Net-zero carbon goals are now expected, and the emphasis is on what companies are doing to get there.”
In response to internal goals and public interest and expectations, Principal® issued its first sustainability bond in August 2021. It’s part of an ongoing effort to utilize more ESG elements in funding and financing Principal programs.
Why ESG?
ESG isn’t just about actions like recycling. ESG fits into the overall Principal strategy of investing options that support people, the planet, and the business—now and into the future.
3 factors for ESG scores
- Environmental: How a company impacts the environment, such as its carbon footprint, waste management, water use and conservation, and its sources of clean energy and technology.
- Social: A company’s approach to diversity of hiring, workforce health and safety, and advocacy for healthy communities and human rights.
- Governance: Management of a company, including diversity, board makeup, and shareholder rights.
There are a number of ways, including a sustainable bond, to implement an ESG strategy. At Principal, those include building an inclusive workplace, accessible and equitable financial products and services, and sustainable business practices. Those serve as guiderails to setting long-term goals and measuring progress, while keeping Principal committed, first and foremost, to a fiduciary responsibility to clients.
Financing infrastructure that’s climate-ready
Infrastructure is crucial to climate resilience: Bridges, roads, dams, and other structures and facilities will need to adapt to withstand extreme temperature shifts and weather disasters that are expected to become more routine.5
The Principal sustainable bond focuses on these very systems: It will finance projects such as green buildings, renewable and more efficient energy sources, clean transportation, and affordable housing. The bond is another example of Principal putting actions to words, building on a pledge of net-zero carbon emissions by 2050.
Continuing growth for sustainability bonds
Investors can expect to see more sustainable efforts like the Principal bond: The sustainable bonds and loans sector is experiencing record-breaking growth.6 In the U.S. alone, over $500 billion of green bonds were issued in 2021.7
For the financial sector, it's gotten easier to identify ESG investments.
“ESG-driven investing used to be about excluding certain types of investments through screening, and there wasn’t enough data to do much else,” Foshag says. “Now that there’s tons of data, this space is becoming much more complex. At Principal, we’re okay with complexity.”
For Everett Miles, vice president of capital markets for Principal, ESG is opportunity—not just for the issuer, but for the world.
“As a father and as a corporate leader, being on the right side of history is important to me,” he says. “What gives me hope and inspires me is the impact we can make when our values align with the values of our customers and the needs of the planet, and we invest accordingly.”
Learn more about our commitment to sustainability at Principal.
Disclaimers
Sustainable bond offerings are typically limited to qualified institutional buyers (QIB’s) through applicable underwriter. May not be a suitable investment for QIB’s seeking exposure to green assets.
Environmental, social and governance responsible investing (ESG) is qualitative and subjective by nature, and there is no guarantee that the criteria utilized, or judgment exercised, will reflect the beliefs or values of any one particular investor. There is no assurance that the socially responsible investing strategy and techniques employed will be successful.
Insurance products issued by Principal National Life Insurance Co (except in NY) and Principal Life Insurance Company®. Plan administrative services offered by Principal Life. Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc. Securities offered through Principal Securities, Inc., member SIPC and/or independent broker/dealers. Referenced companies are members of the Principal Financial Group®, Des Moines, IA 50392. ©2022 Principal Financial Services, Inc.
2 Gallup
3 CNBC
5 American Society of Civil Engineers
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