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Supplements » Global Industry 2020

New York roundtable: Saying no to the ESG naysayers

Funds Europe – To what extent is ESG gaining ground among investors in the US? The perception is that it’s not.

Van Eck – I’d make the practical observation that we’re all global companies. If a client pushes for a particular initiative, you must address it. The conversation has gotten louder for us over the last year, but I don’t think it’s a change of heart in America. It’s just the fact that we’ve got clients or people on a particular board or people at a client that are very educated on the issue and want some serious answers.

Jones – European-based organisations have been addressing, tackling, pursuing, and embracing all aspects of responsible investing for years, well in advance of where the United States has been. But the conversations started with the premise that when you invest for ESG, you’re sacrificing performance. In the US, we have had to demystify that.

Garland – I think you’ve hit on a very interesting point, it’s separating out thematic strategies from the basic idea that you’ve got to have ESG embedded completely into your investment process. I find it kind of interesting where you have managers who launch a whole range of ESG funds. What are you going to do with the other ones? Are they ‘bad’ funds and you don’t sell them?

One of the major global private banks came out a few months ago saying that they’re only going to select funds that have ESG embedded – but every strategy’s going to be like that, I think, in the next two or three years. I think the challenge is that people get confused between a strategy with ESG embedded in the process and think of it as a thematic fund.

Ehret – ESG had thematically been thought about from an equity perspective, but if you just think about risk factors when investing in fixed income and credit, if you don’t have a screen in there, you’re absolutely missing the boat. Most fixed income investors always had some element of ESG in their strategy but never called it that.

Funds Europe – I’ll repurpose one of my earlier questions. Would the conversation about ESG differ between a red state and a blue state in the US?

Jones – When ESG was a part of earlier discussions, it triggered poor experiences with SRI [socially responsible investing]. Fifteen or 20 years ago, SRI was too extreme, with some approaches just completely carving out whole sectors from in their portfolios. It led to some disappointing investment performance and took a while for us as an industry to overcome some of that greyness that resulted from that.

Funds Europe – I cannot imagine that investors based in the fossil-fuel states are really going to agree with fossil-fuel disinvestment.

Jones – That’s coming back to the need to separate and define values from valuation, and where values may be a driver of investment decisions. That’s where I think we’ll begin to see, as we have, impact investing or thematic investing gain some traction.

Coldren – As a member of a French banking group, we have extensive experience in Europe in ESG investing. One of the things we’ve done is to try to address the retirement marketplace as millennials become an increasing proportion of the US workforce. We were the first to launch a suite of ESG target date mutual funds to address that issue, because millennials constantly tell us that they want to invest consistent with their values, so we think the retirement space is clearly going to be an area of growth for ESG and we’re very excited about it.

We also think that the Biden administration will be much more receptive to this idea of having ESG products in retirement plans. The Trump administration created impediments for ESG strategies in retirement plans, limiting how providers can implement ESG investment options as the default option for savers. That’s somewhat disadvantageous to ESG strategies. There has been a lot of industry pushback on this rule. We were one of hundreds of asset managers that submitted letters supporting ESG options inside of retirement plans, which we believe can benefit performance and also incentivise people to save more.