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The Discussion About Investment Strategies Aligned With ESG Metrics (Environmental, Social and Governance, in English) Becomes More Complex When Short-Term Events Occur.
Collateral effect: war between Israel and Hamas pressures oil prices and hinders investments backed by ESG in the short term. The conversation about investments adhering to ESG metrics (the English acronym for Environmental, Social and Governance) becomes more difficult when short-term events – such as the wars in Ukraine and Israel – influence rising oil prices. However, for the long term, the bet on sustainability may be more attractive, according to Marcos Kawakami, head of equities at BNP Paribas Asset Management.
“It’s quite challenging to talk about ESG at this moment. In the short term, we have two wars, and we have an oil shock that significantly influences this theme, as it is difficult to talk about energy alternatives quickly and sustainably. So it becomes complex to discuss this when we have isolated events,” said Kawakami during a panel at the 44th Brazilian Congress of Private Pension, on Thursday, the 19th.
On the other hand, the head of equities at the firm emphasizes that ESG, also interpreted as “sustainability,” is something that is hardly focused on the short term, but rather on the long term. He mentions the Paris Agreement, an international treaty aimed at reducing global warming, which is expected to mobilize billions of dollars annually. “It will create opportunities in many sectors,” says Kawakami. “We have short or medium-term financial concerns to deliver results, of course, but in the ‘bucket’ [of investments] for the long term, there will be opportunity.”
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Regarding risk mitigation, the specialist assesses that ESG practices in investments still have “too short a history to measure.” “The strongest implementation history came in 2017, 2018. Just looking at that pre-pandemic history makes it difficult to measure,” he says. But Kawakami emphasizes that the topic has indeed led to greater demands for sustainability from the companies invested in by asset managers, which benefits the end investor.
The war between Israel and Hamas has generated concerns in the markets, especially regarding oil prices. Instability in the region and the risk of supply disruption have driven commodity prices up. This can directly affect investments, especially those backed by ESG, since rising oil prices go against sustainable practices.
However, it is important to emphasize that ESG is a long-term investment strategy and that isolated events, such as wars and geopolitical crises, should not undermine confidence in this approach. Sustainability remains a global trend, and the transition to a greener economy is inevitable.
The Paris Agreement, for example, is a strong driver of ESG investments. Aiming to reduce greenhouse gas emissions and limit global warming, the agreement will require billion-dollar investments in sectors such as renewable energy, energy efficiency, and sustainable transportation. These long-term investment opportunities are not affected by short-term events.
As for risk mitigation, it is still early to measure the impact of ESG practices on investments. The implementation history is relatively recent, and more time is needed to evaluate the results. However, it is evident that companies are increasingly being held accountable for sustainable practices, which benefits investors seeking companies with good corporate governance and social and environmental responsibility practices.
In summary, although events such as the war between Israel and Hamas may generate instability in short-term markets and complicate discussions about ESG investments, it is important to maintain a long-term focus. Sustainability is an irreversible trend, and investments aligned with ESG metrics have the potential to generate solid returns in the future. It is necessary to have patience and a long-term vision to seize the opportunities that will arise in this context.
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