Client Affairs

Getting Disciplined About ESG, Industry Takes Stock

Jackie Bennion, Deputy Editor, May 15, 2020

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More views on the strides of ESG from leading practitioners at Cornerstone Capital; Maitri in Asia, Waverton Investment Management, and Foresight Group. Views cover regional variations in ESG uptake and filling the holes in client reporting and training for advisors.

The list is pretty long for making ESG investing more credible, including high-quality data that clients can understand; more clarity about products and services; proof of real impact; and more transparency to sniff out greenwashing. We received a large response from firms with varying degrees of detail and insight in the latest look at ESG adoption. The industry is perhaps struggling to find a balance between what investors already know, don't know, and are craving clarity on. Below are comments from New York-based sustainable investment group Cornerstone Capital; Maitri Asset Management, largely active in Asia; Waverton Investment Management; and Foresight Group.

Beginning with client interests, Erika Karp, CEO and founder of Cornerstone, said that climate action, food systems, the state of the oceans, women’s economic empowerment and social justice are the themes tending to dominate. But in terms of what drives corporate behavior, profit outcomes, and share prices, "it’s actually governance that comes first, and is first among equals in terms of discipline of ESG analysis,” she said.

Karp says there is no shortage of ways to implement ESG across all asset classes, but clients often prefer direct private deals because they offer "the clearest connection with their objectives". Real assets and real estate feature prominently in holding preferences, and clients typically use impact venture and private equity in conjunction with their larger equity and debt holdings to structure investments at the firm.

Analyzing for sustainability is much the same for public and private companies, she says, and screening is “just the start". But the strategic and tactical questions being asked of companies, in either market, are basically the same. “A beverage or semiconductor company, public or private, needs to think about water efficiency.  A machinery or shipping company needs to think about safety.  A chemical company or food company needs to think about quality in supply chains. It’s all about asking the right questions in the right context to the right companies,”Karp said.

On MiFID II's effects on sell-side research, Mary Haly, director of private clients at Waverton Investment Management, said the group does its own primary research so it is not dependent on sell-side research, and that the squeeze has created opportunity for the firm. “We have expanded our internal research team over the last few years to enhance due diligence around stock selection" based on four investment criteria - durability, opportunity, alignment and valuation - adding that these are the pillars applied to the firm's entire investment strategy.

Karp argues that sell-side research is short-sighted. "The focus is on quarterly earnings reporting rather than structural sector and macroeconomic thinking", has curbed creativity and finding solutions to big global challenges, she said.  “Our answer is to fuse our thematic investment research with our manager research so that we can get the best view of investment strategies that can then be aligned with our clents’ values and priorities."

With many firms and organisations making a big play of ESG, it raises questions about how well versed advisors are across regions.

Offering a perspective from Asia, ESG lead at Maitri Asset Management Edris Boey, said interest in the region is strong, although Asian investors still view it as “a ‘nice to have’ as long as it doesn’t compromise the returns."

“Multinational investors are increasingly bringing their ESG expertise from Europe and North America – both physically, as well as virtually, by building platforms suited to the Asian market,” Boey said. Maitri hired Boey in Singapore to lead on ESG in 2019 and expanded the team this year as ESG analysis has taken a more central role at the firm.

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