Putting ESG allocations at the heart of future-proof portfolios
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It is no surprise to have seen a slowdown in the pace of flows to ESG funds during 2022. Ongoing concerns globally about energy and food prices sit against the backdrop of supply chain disruption amid persistent inflation, rising rates, war in Ukraine and geopolitical tensions.
Yet this short-term focus on ESG investment appetite misses the point: sustainability is here to stay.
As a result, investors across the region – from the largest institutions to family offices to high net worth individuals – need to define and deliver sustainability in their portfolios. They need to engage companies to steer them in the right direction and, collectively, encourage regulators and other stakeholders to implement common standards and disclosure norms to help bridge gaps in information, transparency and reporting.
This is easier said than done given that ESG applies differently to every region, sector and market. Instead, it underscores the need for investors to continuously assess, analyse and update their data sources as they develop their ESG investment strategies. In reality, the main challenge many investors face is trying to translate the broad array of ESG metrics into an estimate of a company’s profitability and valuation.
Ultimately, investors need to incorporate ESG-focused investments into their asset allocations with a view to making a difference, both in the world around them and to their risk-adjusted returns.
Such a roadmap to an entrenched ESG culture is now essential in implementing ESG consistently and effectively within portfolios.
This is according to specialists from the world of institutional investment, private wealth, asset management and consulting, speaking at “ESG: from niche to norm”, an event hosted by Natixis Investment Managers and AsianInvestor:
- Wong De Rui, Vice President, Sustainability Office, GIC
- Keisuke Kawasaki, Chief Investment Officer, Executive Director, Member of the Board, Nissay Asset Management Corporation
- Jansen Phee, Head of Fund Investment Solutions, APAC & Head Global Investment Management, China, UBS
- Emma Herd, Partner, Climate Change & Sustainability, EY
- Philippe Setbon, Chief Executive Officer, Ostrum Asset Management
- Philippe Zaouati, Chief Executive Officer, Mirova
- David Waldman, Chief Investment Officer, Loomis, Sayles & Company
Read and watch some of the takeaways below -
VIDEO HIGHLIGHTS
EVENT HIGHLIGHTS
Reflecting ESG factors in mainstream investment decisions
Emma Herd, EY
“ESG activity in the form of assets under management and active engagement on behalf of these funds continue to grow strongly despite the market headwinds. We are also seeing growth in corporate engagement and active stewardship in Australia…. In general, ESG acts as a buffer to some of the short-term market volatility we have seen.”
Jansen Phee, UBS
“From a private wealth perspective, we're engaging with clients and providing educational materials to show them that we can help meet their investment objectives with ESG as part of the process.”
Keisuke Kawasaki, Nissay Asset Management Corporation
“The key issue to address [in Japan], is how can we label ESG and categorise it in a way that helps address caution among Japanese investors. They need to see returns that outperform the benchmark.”
Wong De Rui, GIC
“Sustainability and climate are complex topics. There's no silver bullet or panacea to try and address the issue. And we need to be quite multi-dimensional in addressing investments.”
Bridging the data and disclosure gaps
Philippe Zaouati, Mirova
“Europe is leading the way in terms of ESG-related regulations, although there is still diversity in how European investors are implementing these. But we have learned how to use various tools and taxonomies to move the ESG journey forward.”
Emma Herd, EY
“As an industry we are simultaneously building the plane, in terms of ESG standards, greater data and disclosure, while also flying the plane [in terms of investing in ESG funds].”
Philippe Setbon, Ostrum Asset Management
“My suggestion to regulators in Asia would be to create a less complex set of standards than we see in Europe. At the end of the day, regulations need to enhance efficiency.”
Wong De Rui, GIC
“[At GIC] we rely on an arsenal of analytical tools that quantify both the risks as well as opportunities…. We have developed a top-down scenario analysis process that is able to [estimate] the impact of climate change on our total portfolio.”
David Waldman, Loomis, Sayles & Company
“Investors should also be careful about setting specific metrics, as these might create an incentive for money managers to create an ESG product that isn’t necessarily aligned with a client’s sustainability values or objectives.”
More integrated approaches to ESG investing
Emma Herd, EY
“Integrating ESG considerations into investment strategies seems to be strong as an active approach… as almost a ‘hard wiring’” of ESG into decision making. Yet ESG can mean different things to different people, so we need to know what we are integrating.”
Jansen Phee, UBS
“It almost seems like we’re giving investors a choice: ‘do you want ESG or do you want non-ESG?’.... We just integrate ESG into the process we give our clients.… If you look at how we select funds, and how we market the funds, we don't have a separate process for ESG.”
Wong De Rui, GIC
“We believe that if you flatly divest from investments, they may end up in the hands of investors who may not care as much about sustainability issues or helping companies to transition.”
Keisuke Kawasaki, Nissay Asset Management Corporation
“More investors in Japan are taking their first steps in terms of ESG products, but there is still some scepticism.”
Taking ESG investing to the next level
Philippe Zaouati, Mirova
“The most important question for investors, is what is their [sustainability] conviction and objective? This is also the best way to avoid greenwashing.”
Philippe Setbon, Ostrum Asset Management
“Finance has a major role to play in the environmental transition given the vast amount of capital that is needed in the years and decades ahead, and it must step up to the plate. Financial performance is key and will be one of the success factors.”
David Waldman, Loomis, Sayles & Company
“There needs to be a lot of dialogue and transparency between investors and their external managers, to help investors along their ESG journey.”
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