ESG Integration is Driven by Investors
One of the main drivers of ESG activity is institutional investor demand. We have begun investigating some of the world’s largest asset managers to understand exactly what they are looking for in terms of ESG communication.
What did we find?
Of the 12 asset managers we looked at, all of them have become signatories to the UN Principles for Responsible Investment and indicated their support to TCFD aligned reporting. Amundi, BMO and Generation IM are tied for first joining as signatories to the UN PRI in April 2006. Fidelity was the latest entry joining in February 2017. For TCFD the earliest supporters were Generation IM, UBS and Legal and General in June 2017. Goldman Sachs was the slowest to follow joining in September 2018. SASB received support from 8/12 of the asset managers assessed meanwhile 6/12 indicated support to the Climate Action 100+.
If you think that ESG does not have an impact on cost of capital, let’s take a look at this week’s scandal related to fashion retailer brand Boohoo. The Financial Times reported that one of the firm’s biggest shareholders, Standard Life Aberdeen (SLA) sold all of its holdings in Boohoo after an investigation claimed workers at a factory packing the clothes were paid below minimum wage. This decision was in part due to SLA’s commitment to invest responsibly. The firm cited concerns over the progress being made in terms of improving its management of supply chain transparency, environmental efficiency and working conditions.
On top of this, we have seen significant inflows to ESG focused funds over the last 3 years. In a recent poll conducted by Calastone, nearly three-quarters of respondents said ESG will become a standard across all funds, with only 16% viewing standards as a continued significant barrier to growth.
Subscriber Feature:
Product Managing for a Cause
Shelia Oviedo reflects on her experience working in product management + responsible investment. She shares: “Product management in the responsible investment space means PM-ing products that are used by financial services companies to reduce environmental and social risks in their investment portfolios. Such a product may be in the form of ratings or assessments produced by rating agencies or specialized data providers, or it can be a fund that asset managers offer to clients who would like to invest in a more sustainable and socially responsible portfolio of companies.”
Read her full reflection and lessons learned from 10 years of PM-ing in Responsible Investment.
Close Group Consulting and KKS Advisors Announce a Strategic New Partnership to Increase Transparency and Accelerate ESG Integration for Asset Managers
The two firms are launching an ESG integration assessment solution to meet the growing demand from both investors and investment managers for a set of standardized best practices to measure ESG integration across asset management firms. The Maturity Assessment Tool (MAT) is a technology-driven solution based on standard industry frameworks and leading practices that allows a firm to assess their ESG integration practices along a spectrum of activities. The MAT aligns to a firm’s functional model and allows for results to be compared against peers and be benchmarked to the industry.
Read the press release.
Top stories
Finding value in ESG — An APAC perspective
ESG investing continues to gain momentum and prominence among global institutional investors as they increasingly look to benchmark not only the performance of funds in their portfolios but the impact they have on the world. What is happening?
- Investor expectations: Allocators are becoming more demanding and want to see evidence of ESG policies and how they are being implemented.
- Regulation: On 10 March 2021, asset managers will need to comply with the EU’s Disclosures Regulation, which is part of Europe’s long-term commitment to meet its climate change targets, and encourage the growth of sustainable finance.
- Performance: Increasingly, there is evidence that sustainable investing in companies with high ESG credentials not only allows managers to demonstrate their commitment to making a positive impact, it also leads to better financial returns.
Why ESG investing makes fund managers more money
Consider the first four months of this year, when Covid-19 caused global markets to swoon. Over this period, the S&P 500 ESG index, which tracks big US companies with high ESG ratings, beat the normal S&P index by 0.6 per cent. Similarly, outside the US, MSCI’s emerging markets ESG leaders index, and its more Asia-focused AC Asia ESG leaders index, “outperformed their parent indices by 0.5 per cent and 3.83 per cent respectively,” notes the Asian Infrastructure Investment Bank in Beijing. Al Gore, the former US vice-president, tells the FT that “investors who do not recognise this new reality . . . are in serious danger of violating their fiduciary responsibility to their clients by leaving money on the table, and not taking into account factors that can actually improve performance of companies”.
Financial Times.
Market Investors Pay More for Resilient Companies
In a study of 3,023 of the world’s largest publicly held companies — representing about $58 trillion in market capitalization — researchers used data derived from text analysis applied to news coverage of corporate responses to the pandemic between late February and late March, when public markets were declining 30 percent or more before eventually recovering much of their value by summer. They found that more positive sentiment surrounding a company’s response was associated with less negative stock returns, by a difference of about 3 percentage points.
Harvard Business School.
LSEG’s Chief and Mark Carney Call on Stock Exchanges to Push Climate Disclosures
London Stock Exchange Group PLC Chief Executive David Schwimmer and Mark Carney, the UN’s special envoy for climate and finance and former governor of the Bank of England, have called on stock exchanges around the world to support an initiative to help improve the environmental data companies report. On Wednesday, they sent a letter to the CEOs of a number of exchange groups around the world asking them to join a coalition that will commit to supporting climate disclosures in line with the Task Force on Climate-Related Financial Disclosures.
Morningstar.
CDP pioneers new temperature rating of companies for investors
A new dataset made available by CDP gives investors temperature ratings for 4,000 global companies, based on targets to cut all GHG emissions they are responsible for. Based on this new approach currently being developed by CDP and WWF, CDP temperature ratings can be used for gauging the temperature pathway of investor portfolios, funds and stock indices. Europe’s largest asset manager Amundi first to use the rating as part of its ESG analysis, and for the monitoring of four global multi sector equity funds.
Read press release.
Rocky Mountain Institute launches the Center for Climate-Aligned Finance
Rocky Mountain Institute (RMI), a leading global clean energy nonprofit, launched the Center for Climate-Aligned Finance on July 9th. This launch is in collaboration with Wells Fargo, Goldman Sachs, Bank of America and JPMorgan Chase — four of the world’s largest financial institutions. The Center’s mission is to serve as an engine room for the financial sector to partner with corporate clients to identify practical solutions through deep partnerships with industry, civil society and policymakers to facilitate a transition in the global economy to net-zero emissions by mid-century.
Read press release.
UK News: Chuka Umunna joins Edelman as head of ESG
Former MP Chuka Umunna is to join communications company Edelman as executive director and head of environmental, social and governance consultancy. He will be advising the capital markets and financial services arm of Edelman on topics such as audit, embedding ESG factors into decision-making and managing corporate transactions. This is one of many high-profile ESG appointments that has been made in recently created ESG divisions at UK banks and consultancy groups.
Financial Times.
Report Highlight of the Week:
Standard Chartered Sustainable Investing Review 2020
COVID-19 has caused a shift in the priorities of global investors who are re-evaluating the worth of investments that help society.
- Interest in sustainable investing is very high — 90 per cent are interested and 42 per cent are considering investing 5 to 15 per cent of their funds in sustainable investments over the next three years
- More than 40 per cent of investors surveyed consider Clean Water and Sanitation, Good Health and Wellbeing, and Climate Action to be the United Nations (UN) Social Development Goals (SDGs) of higher importance
- Investors from different regions, have differing views on which of the SDGs are of higher importance, for instance, those from Hong Kong favour Climate Action and those in the UAE care more about Quality Education
Other interesting readings:
PUBLIC COMPANIES: Disclosure of Environmental, Social, and Governance Factors and Options to Enhance Them
Most institutional investors U.S. Government Accountability Office (GAO) interviewed (12 of 14) said they seek information on environmental, social, and governance (ESG) issues to better understand risks that could affect company financial performance over time. These investors added that they use ESG disclosures to monitor companies’ management of ESG risks, inform their vote at shareholder meetings, or make stock purchasing decisions. Most of these institutional investors noted that they seek additional ESG disclosures to address gaps and inconsistencies in companies’ disclosures that limit their usefulness.
GAO’s review of annual reports, 10-K filings, proxy statements, and voluntary sustainability reports for 32 companies identified disclosures across many ESG topics but also found examples of limitations noted by investors. Twenty-three of 32 companies disclosed on more than half of the 33 topics GAO reviewed, with board accountability and workforce diversity among the most reported topics and human rights the least. Disclosure on an ESG topic may depend on its relevance to a company’s business. Most companies provided information related to ESG risks or opportunities that was specific to the company, though some did not include this type of company-specific information.
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