Crédit Agricole - Sustainability: a tool to attract long-term investors

Commitments means not only having a strategy, but also execution capacity and willingness to increase the amount of dedicated investments (i.e., “walking the talk” and “skin in the game”).
The history of energy transitions shows us that the world needs both innovative generation capacity and the infrastructure to support it, more coordinated public-private partnership initiatives and the appropriate investors to back long term objectives up.

The increase in markets volatility seen this year is the most visible sign of the number of uncertainties all investors have to face. The paradigm change that is quickly taking the global economy from a deflationary pandemic crisis to an inflationary war/energy crisis not seen in the last forty years is clearly distressing. Corporations and Governments need more than ever long term money.

Change is always sudden and unexpected, but it can be a source of valuable opportunities for the most resilient players. In fact, it’s exactly in times of higher uncertainties that long term investors can look for opportunities: “steward” investors are structurally ready to bear short term volatility because it’s exactly the way they build their long term performance.

Businesses need to play the long game, meaning they have to satisfy the needs of all their stakeholders to maximize their value creation, also for the benefit of their shareholders. Businesses concerned with value creation have long-term horizons, which fuels a virtuous cycle that helps generating wealth.
Different countries/cultures come to different conclusions about the “Purpose” of business. But maximizing wealth for the long term always poses managers in front of trade-offs when allocating capital. By building a strong connection between corporations and broad elements of Society, sustainable development goals contribute to value creation by increasing the Resilience of the business.

The rise of stakeholder capitalism poses both opportunities and threats for management. Absent support from steward investors, companies can quickly become targets of short term activists. Long term investors are focused on strategy and long-term returns, they won’t trade as readily on negative news, providing management with patient capital. Steward investors (from engaged asset owners to active asset managers) identify effective stakeholder management initiatives that can provide a signal also for other investors.

How can corporates and governments attract, cultivate and retain long term investors? A strong sustainability strategy, followed by an effective communication of long term plans, sustainability initiatives and regular disclosure of results are the most important starting points to attract the right investors.

More active strategies can include leveraging relationships with existing suppliers (including core relationship banks) to seek the appropriate investors that can support ambitious sustainability strategies. For example, managers can increase the base of leading ESG investors through dedicated private placements, targeting a number of pre-selected investors. This tactic can work across the capital structure, attracting both fixed income and equity investors. It can also be used as defense strategy allowing firms to increase the weight of more “stable” capital over potential short term activists / dissident investors.

In principle, both business and financial strategy provide tools to deploying capital effectively, aiming to achieve the long-term goals of any Organization. But while business strategy is about maximizing returns on scarce resources, financial strategy must strive to optimize both the composition and the size of the capital deployed. In this sense, a broad approach to Sustainability can help also in terms of financial optimization. In fact, optimizing funding to increase the sustainable finance component can be a good strategy to help achieving those value creation goals - starting from improved financial/capital efficiency - much needed in times of paradigm change.

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