Sustainability now has ‘economic rationale’ says GSAM

Senior executives at Goldman Sachs Asset Management have outlined the “economic rationale” of sustainable investing, citing both the potential it brings for value creation and its role in future-proofing businesses.

“There’s a pretty compelling business case when we think about portfolio value creation and being very focused on decarbonisation,” co-head of private equity Michael Bruun said on a press briefing call last week. “You’re likely to also capture increased revenue from consumers who put a premium on sustainable products and regulators who may or may not provide incentives to further the transition.

“Further, investors are also ascribing a premium to lower carbon intensity businesses in the sense that they’re perceived as more future proof and the cost of capital for those businesses is likely lower than for non-sustainable businesses.”

GSAM’s Sustainable Investing group houses the Horizon Environment and Climate Solutions fund, which closed earlier this year on $1.6 billion. It has recently tooled up by recruiting two managing directors to lead social impact investments.

Jeffery Fine, global head of real estate client solutions, made a similar claim about his asset class. “There’s an economic rationale for it now,” he explained. “We went through a 10-year building cycle where we built a lot of new housing, a lot of new office, a lot of new logistics assets, and they’ve performed incredibly well because tenants want new, they want modern, they want buildings that can accommodate modern technology, that are low carbon emitters, that are more efficient in terms of how they use energy.

“Our LPs are incredibly focused on it. To varying degrees around the world, I would say Europe has been a leader to some extent in terms of prioritising this above most other things, but we’re seeing the follow-on here in the US and increasingly in Asia as well. And so I think the future as we look to redevelop cities and we think about how we repurpose assets again to reflect the modern economy that we’re moving into, I think sustainability is going to be top of everyone’s list.”

Canvassing opinion

The briefing call was to present the findings of Goldman’s 2023 Alternatives Survey, for which the firm asked 212 institutional investors and private markets GPs questions on a range of topics, including sustainability.

Among asset classes, infrastructure managers were viewed as having the strongest sustainability credentials. A quarter of LPs found GPs in the asset class to be highly capable when it came to sustainability, with just four percent percent deeming managers not to be capable. Private credit was viewed less favourably than other asset classes overall, with only 11 percent of LPs viewing managers to be highly capable.