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ESG Leads The Agenda At Davos

What's happening? The environment has filled the top five places in the World Economic Forum’s (WEF) annual risks report for the first time. The five leading risks identified were: extreme weather events; failure to adapt to and mitigate climate change by businesses and governments; environmental damage and disasters caused by humanity; biodiversity loss and the collapse of ecosystems; and natural disasters.

Why does this matter? The report comes ahead of this year's WEF in Davos, where environmental issues are expected to dominate the agenda. Alongside the environment, other ESG issues featuring heavily are inclusion and governance, with capitalism conspicuously absent.

But will Davos mark a change in mindset among investors around accepting lower absolute returns in exchange for lower volatility and better governance? This has long been a soundbite in ESG investing, but the current marketplace is dominated by soaring rates of debt and equity prices, alongside a paucity of organic margins.

In order to comply with ESG values, it would appear investors in a low, or even negative-yield world need to learn less return may well be more, from the perspective of sustainability and stability. The issue at stake is how this shift can be funded. With "high-yield" debt such as the Barclays US high-yield index now yielding less than 5% (approx 3% over US treasuries), what long-term return profile can ESG offer to secure the longevity of funds flow these instruments so desperately require?

Further thought from Curation – With central banks running out of liquidity and fiscal measures seen as a potential policy response, the nation state may well emerge as the green funding platform in a quasi-sovereign wealth fund mechanism.

Further reading:

Nick Finegold is Founder & CEO of Curation Corp, an emerging and peripheral risks monitoring service.

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