Environmental, social and governance (ESG) investments and green technology are not new phenomena across the capital markets, although they have struggled to gain widespread acceptance. But now, in the wake of the Covid-19 pandemic, investors’ priorities appear to be changing, breathing new life into the ESG and green movements.
One positive development to have emerged from the chaos and uncertainty of the Covid-19 pandemic is the extent to which ESG data, sustainable investing and green issues in general have been thrust into the financial services spotlight. Whether this is purely coincidental or down to ESG and green considerations reached a watershed during 2020 on the back of a succession of streamed documentaries and Greta Thunberg’s astonishing rise to prominence is a moot point: ESG-focused investments and green drivers are here, and they’re here to stay.
In a recent survey carried out at the WatersTechnology virtual Innovation Exchange in October, 42 out of a total of 113 respondents (37%) indicated that their firms are currently looking to significantly increase their use of ESG data, while just shy of 20% reported that their firms already use ESG data extensively, underlining the extent to which ESG considerations are figuring in capital markets firms’ immediate plans.
More than 50 years old, Instinet—the New York-based institutional brokerage business that played a pivotal role in the electronification and general evolution of the capital markets in the 1980s and 90s by way of its ubiquitous “green screen” terminals—has made significant strides to position itself as the industry’s go-to green broker. “The original emergence of ESG criteria focused primarily on investment decision-making and financing, but we anticipate a more sweeping adoption of these principles,” explains Ralston Roberts, Instinet’s global chief executive. “We already see signs that ESG is expanding beyond a publicly traded security’s investment valuation or selection. ESG principles will impact an enterprise’s core DNA and value proposition, and will be reported and judged by a wide array of stakeholders, including their customer base, employee base, resource chain, the media and the market overall. We’ve already had a few thought-leading, major asset management client organizations ask us about our plans with regard to ESG,” he says.
Instinet has also made notable advances on the infrastructure front as a means of underpinning its green and ESG credentials. For example, 90% of its employees worldwide work in buildings certified by the Leadership in Energy and Environmental Design or the Building Research Establishment Environmental Assessment Method, while in 2019 it embarked on a process to ensure its third-party datacenters utilize renewable energy on its platforms as quickly as possible.
“Currently, well over 60% of our energy usage is renewable, and we have a multi-year plan to drive that percentage to 100%,” says Minor Huffman, Instinet’s chief technology officer. According to Huffman, Newport—Instinet’s execution management system—is now almost carbon-neutral, while the firm is implementing a new cloud strategy with Amazon Web Services, which will not only warehouse its data lake for its suite of machine learning and artificial intelligence tools, but will also help expand the firm’s transition to fully renewable energy over the next five years. “We’re proud to call this strategy the New Green Screen,” says Huffman.
Looking forward to 2021, it’s clear to see how ESG and green factors will play a pivotal and potentially transformative role in institutional investors’ deliberations. After all, their own end-investors wield the true power to bring about meaningful change, and now that the “green genie” is well and truly out of the bottle, change is inevitable. Not only will this new dispensation transform portfolios and investment decisions, but it’s also likely to influence investment managers’ decisions to partner with execution services providers—a scenario that Instinet is poised to respond to and, by so doing, leveraging it as a differentiator in the highly competitive landscape.
“First and foremost, we believe that integrating ESG into Instinet’s culture and operations is the right thing to do—it’s time to take serious action on these issues,” Roberts continues. “We chose to kick this off with sustainability, since we’ve already made progress in this area, and it is a very measurable way to kick-start our efforts. Aside from the intrinsic value of the strategy itself, we also believe it will further differentiate us and give our clients, many of which are also making significant commitments to ESG, another reason to make us a trading partner of choice.”
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