ESG ?
Interestingly a good hour of the presentation had passed before a fund manager, participating in the product, referred to the importance of ESG (Environmental,Governance, and Social) factors in making his investment decisions. He then went on to give the example of Johnson and Johnson, a company who had improved their value by better sustainable practices. At this point it was like a light bulb had been switched on. Here was something that IFA's , particularly those new to this area, could hang their hat on. This was something they could comfortably introduce into a conversation with clients.
The problem with ESG ,at the moment, is that it's all a little abstract and far removed from the everday dialogue between advisers and investors. It seems to be more the territory of institutional investors and ESG consultants.
It should however be fundamental in driving SRI investment forward because it is saying that by being more responsible to the planet and its people a Company has a better chance of offering more sustainable returns in the long run.
In addition to the example given above there is a growing body of evidence to support this. For example in thier 2007 report 'GS Sustain' Goldman Sachs point to the fact that companies who lead in ESG policies are leading the pack in stock performance (see below).
The Way Forward
As there is more analysis out there advisers should be demanding this from fund managers, and in a format that can be passed on to clients. In turn this will incentivise those managers to demand more disclosure from companies.
It might not be a simple as it sounds but it is a way to appeal to the light greens.
I think you miss the point Richard. Most investors are not investing in the SRI sector. You need to ask why that is, and as you know there are many reasons, including a lack of awareness. Many Financial Advisers do not address the "ethical question" with their clients with any degree of relish. I suspect they introduce the ethical question in almost a negative way. So, how an Adviser puts the question will determine, most probably, the outcome.
Then, if you put yourself in an Advisers shoes, one who does not embrace SRI with any real enthusiasm, you need to ask why they have no real enthusiasm. More often than not it is down to perceived lack of investment performance combined with worries about about asset allocation. We may argue about the merits of this but really the only way to stand any chance of combatting that view is to have available the widest choice of "light green" and "dark green" funds, coupled with an asset allocation mechanism that is professional and linked to a proper risk profiler. To achieve this we needed to ensure that there were no "stated criteria" hence the term "light green".
By Jeremy Newbegin on Sep 24, 2012 at 10:36 AM
Firstly Jeremy apologies for not replying sooner.
Thank you for your comments. I accept there is lack of awareness and perceived concerns on investment performance.
But this is precisely why I think ESG will help them to break these barriers down. At it's heart it is saying that the investment performance of underlying holdings will improve becuase ESG is being considered.
Of course asset allocation is important as is a robust investment process. But I actually believe that ESG factors add another dimension to long term investment performance that mainstream investing doesn't. In his delivery the other day Robin gave the example of Johnson and Johnson as a company that was improving its sustainability and that this was delivering extra returns to its bottom line. Whilst I am not naive enough to believe that share performance is just down to this I do believe it will become a more significant factor, and more evidence is supporting this.
Far from missing the point I feel it's fundamental to moving SRI investing forward
By Richard Essex on Oct 15, 2012 at 09:09 PM