Sustainability is at the top of any investor’s mind, even if evidence is not yet conclusive on how profitable it will be, top insurance executives from NTUC Income and Singlife with Aviva said during the AsianInvestor Insurance Investment Briefing Southeast Asia held in Singapore on Friday (September 23).
Mark Shi, chief investment officer of NTUC Income, said during a panel discussion that he is not yet convinced that environmental, social and governance (ESG) will improve returns, but believes that it is imperative to integrate sustainable principles into a portfolio to manage risks.
“It's very hard to say whether ESG will improve return or reduce return. I think there is not enough research on that front either. In my opinion, it's not so conclusive, but it's hard to argue that having an ESG consideration or building a sustainable portfolio will help reduce risk over the long term,” he said.
“Basically, such a portfolio is more resilient, less susceptible to transition risk over the long term. So in a way, when we look at sustainability, in the SAA (strategic asset allocation) process, is really to improve the efficiency of the portfolio and improve the long-term risk adjusted return,” he added.
As an asset owner, Income relies on fund managers in different ways to help manage its ESG investments, for instance in exercising voting rights and setting benchmarks.
“We outsource all our portfolio construction securities election activities to fund managers. So what retains internally is high level decisions, such as asset allocation selection of fund managers, and setting a benchmark and so forth. So this pretty much means that our ESG approach must come from a top down point of view.”
“When it comes to the implementation of the strategy. We do it through the selection of fund managers. We want them to have an established sustainable investing process. As a matter of fact, 100% of our managers are UN PRI (Principles for Responsible Investment) signatories, and they sign up to equivalent standards,” he said.
On benchmark setting, Shi does not subscribe to the belief that reliance on ESG indices to measure portfolio performance is impactful enough.
“We need to make a distinction between investing in ESG and really investing to make a difference in ESG. If we use an ESG index as a benchmark to drive the portfolio managers' behaviour, they probably will focus on those companies that are already doing good,” he explained.
“So in my opinion, we don't want to limit the option for them to work with ‘brown’ companies, but really to work on stewardship to improve the business. There are more growth opportunities for those companies to move from the ‘brown’ stage to ‘green’ state. From there we will ultimately benefit from returns,” he said.
Singlife with Aviva
Singlife with Aviva similarly has a selection criteria for its managers, while making sure it adheres to the same principles.
“We will ask questions of the managers such as what's your gender representation and diversity? But we don't do it just to test the manager. It's because we want to reflect that as well,” Kim Rosenkilde, group chief investment officer of Singlife said at the same panel.
On ESG investments specifically, he said: “The ‘G’ part of ESG has been around for a long time. And surely you want to invest in companies that have strong ‘G’ and ‘E’ because it’d probably do better in the long run.”
“For me, it's a question of where there's going to be the most investments over the next decade,” he continued. “So it's a greater probability of us getting our money back. That's where you have to take a commercial view of the investments that you're making. And then you will find your philosophy around that which is when you see what will work so that we can keep protecting people.”
Click to find out more about the AsianInvestor Insurance Investment Briefing Southeast Asia.