A Future-Fit Business implements investment policies and processes that continuously seek to improve the future-fitness of both the financial assets it owns, and any that it manages or controls on behalf of third-party asset owners.
What this goal means
Many companies own or control financial assets (equity investments, debt instruments, cash deposits with banks) as part of their core business, as a strategic business objective or simply as a method of utilizing spare cash until it is needed for other purposes. Purchasing and trading financial assets supplies capital for the investee to continue – or expand – its activities. Any positive or negative outcomes caused by the investee may be sustained or increased by the capital provided, and so the investor is mutually accountable for them.
To be Future-Fit, a company using its capital to finance the activities of others must strive to safeguard the pursuit of future-fitness, by identifying and mitigating any negative impacts – and understanding and maximizing the positive impacts – resulting from those activities.
Why this goal is needed...
Between 60-80% of coal, oil and gas reserves of publicly listed companies are ‘unburnable’ if the world is to have a chance of not exceeding global warming of 2°C.
Company valuations do not typically inform investors about their exposure to these so-called “stranded assets”, despite these reserves supporting share value of $4 trillion in 2012.
There is substantial and continual growth in both the demand for Sustainable and Responsible Investment (SRI) opportunities, and in the availability of information reported on extra-financial performance.
According to Eurosif’s 2016 European SRI study, exclusion-based strategies grew at a rate of over 20% per annum to represent more than €10 trillion of assets, covering 48% of the total of European professionally managed assets.
Major investment is needed to meet the SDGs. While some initiatives should be publicly funded, success will also require significant investment of private funds from individual and corporate investors.
The United Nations Conference on Trade and Development estimates it will take between $5-7 trillion of investment, with an investment gap in developing countries of about $2.5 trillion.