The price investors are willing to pay for sustainable investments is rising

– There is a tectonic shift toward sustainable assets.
– Institutional investors plan to double their sustainable assets under management in the next five years to 37%.

Here is an excerpt from this short piece from the BlackRock Investment Institute about climate-aware asset class return expectations:

The price investors are willing to pay for sustainable assets is changing. The BlackRock Global Sustainability Survey of September 2020 found 425 institutional investors planned to double their sustainable assets under management in the next five years to 37%.

We see this as a tectonic shift toward sustainable assets. Changing investor preferences will spur a climate change-led repricing due to the falling cost of capital for sustainable assets. These assets will generate higher returns than traditional peers as a result, in our view.

Investors are just starting to respond to the structural shift, suggesting it is not yet in the price. Once this repricing phase has passed, we believe this channel will eventually no longer be this channel is no longer a boon for “greener” assets’ expected returns.