With so much concern surrounding what responsible investment means in practice, the first panel of the 2022 Responsible Pathway Live event heard how fund managers identify and monitor responsible investment opportunities.
During the panel, titled Responsible investment in practice, ESG experts from Aegon, Baillie Gifford and Pictet Asset Management, spoke about how they are tackling the subject. Here are the five key takeaways.
- Look long term
With such terms as responsible, ethical, ESG, impact and sustainable investing, Marianne Harper Gow, ESG specialist at Baillie Gifford, said defining a responsible investment is critical in understanding what it means.
“Whatever term you call it, responsible investing is about being longer term,” she said. “It’s about analysing companies case-by-case and on their own merits. This requires a lot of resource and expertise to do properly, and increasingly it means holding ourselves to account.”
Ella Hoxha, senior investment manager at Pictet, added although responsible investment is about focusing on the actions of a company, it is also about how they treat their clients. “By nature it is a longer-term journey and our focus is on strategies that incorporate ESG binding issues and impact investing.”
2. Link to financial materiality
Although there are many aspects to being a responsible investor, Brunno Maradei, global head of responsible investment at Aegon, said it is vital to keep financial materiality at the forefront of your mind when doing investment analysis.
“At the end of the day asset managers are paid a fee to have an opinion about what is financially material, and what isn’t, including environmental and social issues,” he said. “We must make sure we can capture these issues when we are investing.”
“The key point is what is material to the investment case over the longer term,” added Harper Gow. “Any company that abuses the environment, treats staff poorly or deranges the fabric of society, will within a timeframe, be challenged by regulators or abandoned by customers.”
3. Be active
Once they have chosen to invest responsibly, Maradei said investors also have a duty to be active owners.
“You can’t say you are an active manager but actually not do anything once you buy the portfolio,” he said. “You have to be talking to the invested companies and be influencing them to manage their sustainability risks.”
“You can find academic evidence that says ESG integration hurts performance, and other evidence which says it helps,” added Harper Gow. “The golden thread that runs through everything we do is we are concentrated, active, long-term managers looking for sustainable growth.”
4. Watch the greenium
While responsible investing in the fixed income space is in its infancy, Hoxha noted that already a ‘greenium’ – a green premium – has appeared meaning they have lower yields compared with non-green bonds with otherwise similar characteristics.
“While green bond issuance is likely to triple or more over the next four-to-five years, it will take some time for ESG to become more mainstream in fixed income because the overall bond market is huge,” she said.
As a result, Hoxha expects the greenium to last for some time yet because the asset space is still not sufficient enough to house all the capital that goes into the fixed income market.
5. Challenge fund managers
When it comes to responsible investing, the one thing many investors are fearful of is greenwashing. “This is something we very much take to heart and I am sure we will see more cases of it to come,” said Hoxha.
What can be done to mitigate this? For Harper Gow, the answer is simple: “Don’t pretend to be doing things if you’re not doing them,” she said.
So as to avoid accusations of greenwashing both Harper Gow and Maradei argued it is important investors challenge fund managers on how they are managing money.
“Don’t over rely on the metrics,” said Maradei. “Data can be flawed, so it is important to challenge fund managers to understand if they really know what they are doing when it comes to sustainable investing.”
All 5 panel discussions are available to watch on demand here: https://www.bonhillevents.com/EN/ResponsiblePathwayLive-July2022/OnDemand
