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Magazine Issues » May 2022

ESG roundtable: The Deliveroo of ESG

Funds Europe – A key question within this topic is whether ESG helps investors to improve fund performance and lower risk. Does it?

Harper – While a generalisation, would it be true to say that there are not fiscal consequences today if you as an issuer report according to the EU taxonomy and are not in alignment with it or at the threshold levels? There’s no penalty for that. If there were financial penalties, that would affect the bottom line, and from a financial perspective, that would get conveyed into your P/E and then your multiples for your market valuation.

Dreher – Everything put in place with SFDR and the drive towards more transparency was about whether investors will act on it. So, in the next few years, we will see if this happens or not because, so far, it’s just about reporting. I’m torn to know if it really will happen: if investors will divest from funds based on the newly created transparency.

Funds Europe – What developments do you expect to see in or around the ESG sector, whether in fund management, the corporate world, or society at large?

Cabie – Progress in ESG materiality will be a key issue. There are a lot of political decisions in the pipeline now and we will see how all this materialises in terms of what ESG aspects are important. For fund managers, I hope and think we will see a further structuring of ESG products. We have seen this start with SFDR, but it’s only a disclosure classification. There will be some additional elements coming on top of this. And what I hope is that we will, of course, focus on the outcome of the investment.

Dreher – Data will be more accessible and the issue will come back to what sense investors are making out of it. It’s not only about crunching numbers but also interpreting the numbers and about integration across the whole asset management value chain.

Powdrill – There will be some level of pushback on ESG from corporates and others – but that would be a signal of success. What I mean by that is, for a long time, issuers haven’t been too fussed about the growth of ESG because they felt it’s a relatively small part of the market. That’s changed and ESG is now a much larger part of the market. For example, we’ve seen some companies in an unloved sector complaining because of ESG factors increasing their cost of capital.

The growth of big passive managers means there are some concerns about their influence over individual companies, particularly in the US. The flipside of that is there might be greater democratisation by giving underlying clients a greater ability to vote.

Piffaut – We need to be very conscious of one of the biggest transfers of wealth in history between baby boomers and millennials in the next few years. Numerous studies show a strong preference for sustainable investment products among millennials. How you define sustainable investment products will be quite important for those millennials with their new wealth.

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