A number of influential fund selectors consider environmental, social and governance (ESG) principals to be aligned with better performance – albeit the evidence is not conclusive, they say.
This is one of the ten views about ESG investment that fund selectors who belong to the International Advisory Board for Fund Selection (IABFS) have released, along with the opinion that ESG investing is driven more by clients than by fund managers.
IABFS is a body set up to discuss trends in fund distribution and is sponsored by Spanish funds platform Banco Inversis.
The full ten views are:
- Integration of ESG into investment decision making processes is taking asset management beyond the traditional ‘exclusion’ approach.
- Many asset managers see ESG integration merely as an additional information set while some see it as the principal criteria for security selection and portfolio construction.
- Though inconclusive, academic evidence suggests ESG considerations are aligned with better performance, or at least not a structural detractor to performance.
- Lower returns may be less of an issue to clients who have an ethical aversion to excluded investments.
- The integration of ESG criteria into investment processes is far more advanced in northern Europe and Australia with North America and southern Europe lagging.
- ESG criteria are primarily driven by clients rather than fund managers. Fund managers generally act in response to client demand.
- Clients are becoming increasingly aware of global sustainability issues, so investment decisions need to reflect these values.
- Fund selectors play an important role in increasing the awareness of ESG factors among fund managers.
- New EU-regulation is likely to stimulate transition towards greater use of ESG criteria by fund managers.
- The move by fund managers to develop their ESG approach still represents a business opportunity.
The advisory board is made up of six leading fund selectors. They are: Per Lindgren, head of manager selection at Skandia Liv Asset Management; Dr. Dirk Rathjen, of the Institut für Vermögensaufbau; Adam Smears, head of fixed income research at Russell Investments; Ramon Eyck, head of emerging markets equities at Abu Dhabi Investment Council; Dr. Andrew Clare, Professor of Asset Management at Cass Business School; and Guendalina Bolis, head of fund selection at Inversis Gestion.
ESG has been growing in popularity in recent years as fund managers increasingly recognise the demand for ESG capabilities. More investors are looking for a sustainable approach to investing.
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