One of the dominant themes in financial markets at the present time is the rapidly rising demand for sustainable investing based on a closer examination of environmental, social and governance (ESG) factors.
In part, this is no doubt to do with rising consciousness among investors and the public at large about specific environmental issues such as climate change – and the perceived need to act with urgency to address them. And a similar rising awareness about social issues, such as exploitation of workers in supply chains or inequality of treatment based on gender or race.
Asset managers have been responding with increasing vigour to the demand for action to address these issues. Many, if not most, now offer ESG-based strategies or claim to build ESG into their investment process. A huge proportion of the world’s assets are now managed by firms that have signed the United Nations Principles of Responsible Investment (UNPRI).
A rising array of academic studies also seem to show that investing in a more ethical or ESG-based manner seems to deliver better returns – with the pleasing implication that ‘good’ companies perform better and hence, as an investor, you also perform better by investing with a more ethical approach.
There are, however, many questions raised by the trend. To what extent, for instance, is it a genuine phenomenon – or in reality just a PR box-ticking exercise that is effectively ‘greenwashing’? And is that apparent outperformance simply driven by the sheer weight of money shifting into ESG? To what extent might that, arguably, distort markets – in ways that may not be so beneficial in the longer run? Ultimately, is this ESG trend itself sustainable?
Clearly, the various factors in E, S and G are driving different investors and asset managers to act in a variety of ways. While all sorts of different ratings and rankings have been emerging, we are at this stage still far from a consensus on the data that should be used – or how to analyse it – to introduce or adopt meaningful, widely accepted standards in ESG.
There was therefore much to discuss at this roundtable, held at the London offices of Scotiabank in late 2019. To participate in the discussion, we were delighted to bring together such a diverse group of individuals – including speakers from one of the biggest investment institutions in Canada, one of the world’s biggest investment consultants, and all sorts of different asset managers from some large and mainstream firms to others that are more alternative or focused on impact investing.
Those taking part all felt it became a fascinating and illuminating discussion. We hope you find this report on their discussion insightful.
Please browse the embedded version of the report below (best viewed in fullscreen) or fill in the form on the right to download a PDF version.