ESG Investment (and by ESG we are including Impact and SRIs) is the fastest growing sector in asset management, presenting trillions of dollars of investment opportunities.
At this October’s iConnections Investment Institute Forum, we listened to allocators working in this thriving field and captured some of their practical insights.
Part one of this two-part feature explains how we can define ESG and prove its benefits for investors.
“ESG is a wonderfully amorphous term, but there are some distinct definitions. SRI is Socially Responsible Investing, which got started in the 1800s with Quakers. It’s values-based. ESG itself stands for Environmental, Social and Governance, where individual factors in these areas are used to measure impact. And then you have Impact investing: investments into companies or funds with measurable benefits alongside a financial return.”
“This is the inflection point for the technologies that will combat climate change. We have to move quickly. We need to inject the capital that is putting capacity into the market. ESG can be seen as risk management.”
“We have seen the upswing in ESG. It has been embraced by investors. It is about resilience, more relevant than ever in a situation right now with lots of disruption, with the pandemic, but also environment issues and climate change.”
The advantages of ESG
“Customers, employees and shareholders: if a company can retain the best of all these, you lower your overall costs, making you more competitive, profitable, valuable to all.
Not only do you change one company, you change a whole industry, as everyone has to follow suit to keep up.”
“The focus in ESG is creating a framework to help investors see how resilient companies are to the changing future. ESG is a framework that can better help you understand what this means. The result is extraordinary resilience over the longer term, and this portfolio has exceeded its benchmark. It helps us better understand how companies can face the challenges we are seeing.”
Why ESG matters
“We are seeing a rapidly shifting regulatory environment. If you look at the EU there is a significant shift driven by their sustainable finance plan, part of the global financial markets, which will influence how we invest. We are seeing technological shifts, customer preference shifts, a low carbon preference, There is more to ESG than just being a good investor.”
“We find the S in ESG has come to the fore of late. Depressingly, there is no vaccine to climate change, or vaccine for racism and inequality. But the business case for a cleaner and fairer world has empirical support, and investors can’t dismiss that lightly.”