Corona Virus Chronicle (XVII) - ESG investing - An Investment Profile With a Conscience
'The pressure on companies to fully embrace ESG standards builds on a daily basis as individual investors ask for a portfolio that is founded on these principles.'
In the not too distant future, every portfolio will have to publish an ESG rating. This move is driven by a need to ensure the management of the planet is fully considered; to take into account sustainable resource management, clean and non-harmful environmental practices and human resource policies which consider balance and fair treatment in terms of employment and labour.
The move toward full ESG investing is clearly something that must be completed sooner rather than later as our lives are affected by climate change, human rights concerns and the effects of corporate management policies on a top down basis which must now be embraced in every aspect of social responsibility.
It is considered that the most fundamental way of pushing for change is to place pressure on corporations to actively embrace ESG principles. The ESG investment movement has been growing steadily and it is the case that costs of capital will dramatically increase for those companies which stand outside of the fundamental principles that are serving to protect and improve the future of the world in which we live.
At SaSo we recognise that there should be a way for our clients to embrace these core principles. Our clients, regardless of their position in the investment journey of life, need to know that they are investing, for their personal circumstances, in a way that will help shape the World in the now and the future.
With this viewpoint we have developed a balanced investment strategy with our ESG investment profile. The ESG profile combines the investment principles of a managed portfolio with the caring conscience of a long term investment mandate which seeks to drive out businesses that either cannot or will not comply with these aims.
Over the next few years the principles of ESG will become wholly integrated into every investment portfolio, such that it will be a natural everyday component of investment reporting. ESG considerations will shape the future; non-compliant investments will be easier to deselect and will stand out much more than they do now. The pressure on companies to fully embrace ESG standards builds on a daily basis as individual investors ask for a portfolio that is founded on these principles. This pressure grows at every corporate board meeting where ESG standards are challenged and require personal board member sign off. Crucially, at the time of corporate reporting, these standards need to be shown and demonstrably proven to an increasingly demanding and critical investor base. It is telling that the German software company “SAP” has just launched a product that will enable its customers to track greenhouse emissions in their supply chain. SAP has 440,000 corporate clients whose activity “touches” 77% of global transaction revenue. Their “Carbon Footprint Analytics” product will enable a networking effect, which will get smarter as more customers use it.
So, at the corporate level, as each reporting period approaches, board members and executives will become ever more aware of the need to present their progress on ESG to investors. Such progress is already a highly reportable and newsworthy consideration as evidenced by headlines on prime targets such as energy companies, who have recently resolved to become carbon neutral within a quickly shrinking time horizon. It will soon be the case that failures in these goals will be costly as the increasing pool of ESG investment causes significant capital flight from under-achievers and stubborn non-conformers in this and other ESG areas.
Important large scale investors have, over the years, increased their ESG demands. BlackRock, for instance, the largest mutual fund investor in the World, which is invested in more than 5% of the entire US Equity market has prioritised ESG as a principle to work towards across it’s fund and ETF range, regardless of whether a fund is specifically oriented to ESG or not. MSCI, the leading provider of investment indices produces ESG rating standards that now enable a comprehensive company ratings system, with a follow through series of ESG focussed indices. ESG investment goals have now become an irresistible force for change.
Head of Investments
SaSo Strategic Advisers
17th June 2020
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About the Author
Peter Smart, Head of Investments
Peter has been involved in investment markets since 1985, working within the private client areas of two global banks and for 22 years as the fixed income specialist for the UK Wealth manager, Brewin Dolphin. More recently Peter formed part of the investment team at bridport in Jersey specialising in the provision of specialist, income focussed portfolio’s.