In 2020, the world witnessed record inflows into sustainable funds. Whilst the headline bodes well, it is imperative to dig deeper for context, given there is a general lack of consensus as to what an ESG mandate is as well as a number of approaches to ESG integration.

Whilst there is an explosion of interest in sustainability, asset owners also note a palpable lack of investment opportunities when it comes to niche thematic sustainable funds aimed at sustainable products and solutions.

What constitutes financial materiality has evolved as a result of the real-world events that have taken place over the past year, such companies’ lobbying activities and whether that matches up with some of the social claims that they might make in public. This is where the contextualisation of numbers, KPIs and different metrics is vital to truly make sense of the data. The next step is to translate that into the investment process in order to gain an advantage over other investors.

Today’s emphasis is on tilting towards quality – and those who do are most likely to find that edge, generate alpha and manage downside risks better.

Romil Patel, International and ESG Editor

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