Policing the world – investment management’s new role? Media and action groups continue to demand that large asset managers use their voting powers re

Start with environmentally sound companies through solid research.
PMs then integrate this research into the investment process.
Once the portfolio is built, the role of the fund manager is stewardship and to increase the sustainability performance of the funds.

Clients expect us to do it. It’s not a product it’s an expectation. Individuals do ESG (recycling etc), so why would I give you my money to do the opposite.
We have to listen and react to what the client wants. To be aware, acknowledge and try to implement. We HAVE to listen to clients and get on with it – we won’t be perfect right away, but we have to start the process.
As a firm, we have disinvested from certain sectors, but not all our clients will take the same view.
In our experience, the biggest resistance to portfolio change comes from investment managers themselves. Investment is a bit like religion – people hate outsiders messing with their convictions – to turn down a great idea on environmental grounds is alien!
There is however often a misconception that you give up return through taking an ESG stance.
It’s interesting that organisations are now not only appraised on financial performance – for example, Shell now has a carbon offset target as part of their compensation.

It’s a constant education battle.
We are certainly responsible as we are the allocators of capital.
Is there more benefit to allocate to firms that are transitioning, or to firms that are pure ‘clean’ plays? For example BMW vs Tesla: Teslas are 100% carbon neutral whereas 20% of the sales of BMW could have a 20% improvement target with an outcome 200 x the sales of Tesla.

Climate change is huge and we have removed tobacco and oil stocks.
All of a sudden, ESG is considered differently by each client which totally screws model portfolios and ROBO advice.
Performance is always key, but ESG is a critical factor to try to combine.
Directive from regulators – how can 50% of revenues be from a finite basket of firms.
ESG makes things dangerous as everyone wants a bespoke portfolio – clients won’t pay the price for bespoke management but we are under significant fee pressure from the regulators.
Better to be partially right than absolutely wrong.
Environment carries a different ‘weight’ to other ESG topics, such as tobacco.
Do you have to live it, as well as offering it?
ESG is also a key factor for modern day recruitment and staff retention. You can have a green-a- building as you can, but the real impact comes from your investments.

It’s a real key element of relationship management now.
Impactful strategies have been offered for many years, but assets drawn to this have been modest at best – anything new/untested/expensive is going to have a slow start.
Explaining exclusions is too simplistic these days. In 20 years ESG won’t exist as it will just be so integrated. It will just be investing.
The big challenge is articulating to clients exactly what they are buying

Expert: Kenneth Robertson, Corporate Governance Analyst. Robeco

Facilitator: Giles Patterson, Director, Scorpio Partnership

Defaqto Annual Conference September 2024