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Supplements » ESG Report Winter 2020

Roundtable: Pursuing ESG and pursuing financial returns is exactly the same thing

Funds Europe – How do you think ESG investing will develop over the coming 12 months and overall, are you optimistic or pessimistic?

Nazarova-Doyle – I am optimistic. We now have data for the UK that shows that – and even in the five months at the start of the pandemic – we had more flows into ESG funds than we’ve had over the last five years, so it’s incredible and it’s growing exponentially, not least supported by the wind from regulations that’s blowing in the right way in pensions. It’s only going to be more, and it’s only going to move faster, and it’s almost like an arms race now between pension providers, pension funds all wanting to show leadership on ESG and do the right thing, which is positive for change, so we’re all competing to be the best, be sustainable and do the right thing for our pension members. I’m inherently positive but it’s not without challenges. In terms of investors increasing the allocation to ESG strategies and integrating that into their way of thinking, I’m quite hopeful and positive.

Marshall – I’m also an optimist. In relation to an ESG arms race, I would like to see less competition and duplication, and more cohesion and collaboration. I think we will see further mainstreaming of ESG, so candidates undertaking the CFA will do more ESG in their ordinary course of learning and writing an equity or a stock note would include ESG and be done by the person who’s best placed to measure and price that intersection between ESG and value. It will also become more bread-and-butter for ordinary financial analysts and there will be an explosion in the way that ESG data and research are used. A lot has changed already, but most people are still using one or more external ESG data vendors and then combining them in a way to process, and a lot of it is backward-looking and qualitative – that will change. We’ll make use of alternative sources of data like satellite imaging, big data and artificial intelligence. Broker researchers have just started to enter the market but will become a bigger share of the market, again with their ability to price risk and return, not just measure things in tonnes of carbon or litres of water. 

Shihn – I’m optimistic. It’s hard not to be when you see the pace of change and direction of travel and just how much we as an industry group and society have come on in the past 12 to 18 months. The proof will be in the pudding, and the ability for individuals to more easily identify and avoid greenwashing in investment processes, and for sustainability considerations to filter across asset classes more deeply and not just be seen as a largely public equity-focused issue. We can see this taking place in areas such as fixed income and some private markets, and hopefully we can see progress within other areas too.  

MacDonald-Brown – I’d definitely say optimistic. In my world, I’m talking about impact with a little ‘i’ with regards to how investors think that I should be using my stewardship roles to effect change within companies, both from an activities point of view but also from a behaviours point of view, and that demand will continue to grow. That also echoes something that I hope will happen – that we will have fewer conversations about ESG and sustainability from a risk-mitigation issue and more from an opportunity potential, whether that be moving from just thinking companies are bad because of Scope 1 and Scope 2, to rewarding companies for avoided emissions and positive impacts on society, because as an industry we are very focused on negatives. I hope that we continue to see this evolution about all of us as owners, carers of capital, using all the tools that we have available to us to enhance the experience of our clients and the man on the street. The sea change is huge, and we have to keep going.

Mascotto – I am optimistic, which is rare for a French person! My team and I have identified five key trends to watch. We believe successfully addressing these trends should not only contribute toward mitigating downside ESG-related risk and increasing the possibility of upside potential, but also help managers adapt to the prevailing shift in mindset toward sustainable investing:

  • More investors will demand movement toward a circular economy;
  • Unfettered by regulation, ESG momentum will continue as trends become ingrained with economic realities and generational shifts;
  • Companies and investment managers will face increased scrutiny on ‘greenwashing’;
  • Investors will favour a cleantech thematic and engagement approach over full-fledged divestment; and
  • Consumers will continue to adopt the ‘internet of things’ way of life, but not at the expense of data and privacy protection.

Schiendl – We are, and have to be, optimistic. We are the financial industry and we have taken on the role that the regulator and the lawmakers envisioned that we are an important changer and part of driving the change to a sustainable world and to sustainable finance. It will spill over – we have been speaking about pension fund and the investment fund business, but this whole belief and approach will spill over to the insurance sector, the banking sector and ultimately, retail customers will require a pension fund, investment fund and insurance company to offer sustainable and climate-neutral or climate-improving products. In that sense, it can and will lead to better growth for our industries. Two or three years ago, there was scepticism in terms of whether this would happen, but now is it is happening, and we are in the midst of this. We are contributing to essential change and we can be proud of this in the end.

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