2020 vision: Investment trends to define the New Year

In the third part of our ‘what to look out for in 2020’, we ask industry experts’ for their input on investment in the securities services industry.

By Editors

2020 will be the year of the ‘Circular Economy’

Matthew Davey, head of coverage, marketing and solutions, Societe Generale Securities Services

The concept of sustainable investing asks us to consider the value of a business beyond traditional shareholder metrics, for example, along the lines of the UN’s Sustainable Development Goals. We have reached the tipping point where no large company can ignore the importance of sustainability to its shareholders and customers.

However, it is imperative that we move away from the wasteful linear economic model to a circular one, where resources are reused. In 2020, I believe this concept of a circular economy will be on the agenda for companies, investors, consumers, governments and others. 

The EU has recently called for the shift to circularity to be the first priority within their ambitious Green New Deal. Their Circular Economy Package includes an updated action plan to start addressing some of the key issues.

This move away from a linear economic model won’t be easy, as it requires a fundamental change to our view of capitalism. It will need to be implemented at scale to have an impact and the Financial Services industry will have a key role to play as an enabler.

 

The E in ESG takes centre stage

Seymour Banks, head of ESG, INDOS Financial

The UN-supported Principles for Responsible Investment argues that climate policy could wipe out $2.3 trillion of value from the MSCI All Country World Index (ACWI) over the next five years. This comes in the wake of the first climate change bankruptcy as the Californian utility, PG&E, went into Chapter 11, destroying over $50 billion in market value over two years. Climate change risk is now recognised as a material financial issue which threatens the long-term value of investment managers’ portfolios.

Recognising this, Chris Hohn, manager for the Children’s Investment Fund, has called upon investment managers to demand climate risk disclosures from their investee companies. His climate risk rallying cry also calls upon asset owners to fire any asset manager without credible, climate related, risk management policies. You can expect this to happen as the ‘E’ takes centre stage in 2020.

ETNs and ETCs kicking on!

Stephanie Lermusiaux, Head of FundsPlace, Euroclear

After the sustained success of international ETFs which, we are convinced, will maintain growth while leveraging the ICSD model, our prediction for 2020 is the rise of exchange traded debt (ETDs) and exchange traded commodities (ETCs). These new types of wrappers promoting commodities and debt will continue to rise and boom in the coming years. Within the exchange traded product family, they will follow ETFs and are the next ones to fully benefit from the international structure of the ICSD, bringing together investors from around the world through our expanding network of stock exchanges.

A new breed of FinTechs to help meet the industry’s ESG data challenge

Christelle Ybanez, head of asset owners and asset managers strategy and planning

ESG data providers have significantly strengthened their offer and increased their scale. However, no single provider can offer a robust ‘one-stop-shop’ ESG solution.

Fortunately, a FinTech ecosystem is emerging that goes beyond company-reported data sources. These FinTechs are harnessing an arsenal of new technologies: big data based on asset-level information (facilities, power plants, etc.), natural language processing (NLP), the Internet of Things (IoT), satellite imagery, blockchain, and robo-advisors. These new technologies and alternative data sets once implemented will give investment firms who embrace them a significant competitive edge.

Given the proliferation of data providers, investment firms will increasingly look to third party providers to manage these data. As such the race will continue among custodians to evolve their capabilities and integrate FinTech and data.

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