Funds Europe – What companies have done the most to embrace some aspect of ESG which, as a result, could potentially see them gain greater levels of support from investors?
Powdrill – There will be ESG factors that deliver outperformance and although some of them might be ephemeral, some could well be long-lasting. The overriding point is that you’ve got to be clear about what you’re trying to do. Are you in the business of seeking to generate returns and using ESG as a way of achieving that? Or are you seeking to improve the ESG credentials of the portfolio companies that your core strategies are exposed to?
Dreher – Each investor has a different view of sustainability. If we say, for example, ESG is just about negative or ethical screening, then it has no relationship to performance at all.
But suppose you talk about impact investors or true ESG integration; in that case, it’s about identifying extra financial risk criteria that will have a medium-to-long-term impact on the profitability of the company. And we can definitely say in the medium-to-long term that an ESG-optimised portfolio should do better than a portfolio that isn’t optimised.
Piffaut – There will never be a perfect company in terms of ESG. But as investors, we’re looking for which ESG considerations have not been factored into a company’s stock price and where, therefore, we can see additional return and outperformance compared with peers. We encourage companies to deal with ESG risks and manage them better through our stewardship activities and engagement programmes. It’s quite important to keep in mind that we look at this through a transition lens.
For example, BP is a company in a high-impact sector that has been engaging with stakeholders; we’re one of the investors engaging with it on its net-zero strategy. It has a triple net-zero strategy to reduce emissions through operations, upstream production, and downstream energy sales. But it’s important to remember that ESG is not about certain sectors; it’s about how companies adapt and their resilience to ESG risks and trends.
Cabie – It is important that when we assess how a company behaves, we are doing this based on what we expect from the company in terms of the management of sustainability risk. Company activities have to be aligned with the move toward a sustainable world and it’s really important to have a global view of a company and assess the positives and negatives that we can see. In the socially responsible investment funds we run, it’s much more about finding a way to combine the financial return with the ESG quality of the company.
Harper – On the question of performance, stakeholder capitalism has become a second measurement tool behind monetary returns. For people thinking, ‘I’ve invested in ESG; therefore, I’m going to get a higher return,’ that could haunt them because there will be divergence in certain market cycles, depending on whether you’re a growth investor or a value investor. My sense is that it’s better to look at stakeholder capitalism through data and ask, ‘How do I measure my impact?’ Thanks to the UN Sustainable Development Goals (SDGs), we have a way that helps us begin to think about how we measure impact.