Mona Shah: ESG is no fadPublished on 28 June 2019
Ahead of the launch of the Global Sustainable Investment portfolio we talk to Mona Shah, Investment Strategy & Research Director
Sustainability is not just about the environment. It is about environmental, social and governance factors (ESG). The media focus on carbon footprint but there are many different aspects to long-term sustainability. Some conflict with each other, for example when a mine closes down people will lose their livelihoods, but all focus both on the planet and on society.
We give equal weight to each - E, S and G. Having said that, when managers engage with companies they usually start with governance. We focus on stewardship and managers who put sustainability at the heart of their process. Many talk a good game but a closer look often uncovers evidence of ‘greenwashing’ - repackaging existing investments as environmentally friendly.
ESG is no fad. It is becoming the norm in Europe and many emerging markets are seeing the benefits that sustainable policies will bring over time. However, we must be mindful not to judge all companies by the same standards. We should measure them fairly according to their peer group and geography, rewarding those embracing their journey towards greater sustainability to improve outcomes for society.
You don’t have to sacrifice performance for ESG. At its most basic, incorporating ESG analysis, adds a layer of risk management. A typical quantitative risk framework does not have the nuances to identify political and social risks. The public cares about issues like how a company treats its employees, its environmental impact or safety record. Ignoring them can have a detrimental effect on share prices if something goes wrong. The more sophisticated ESG investors go beyond this and can actually help drive the earnings of the company by being more sustainable.
Sustainability goes beyond equities. Fixed income investors have a very important role to play. By incorporating ESG analysis, as well as providing longer term funding to companies who are innovating solutions they benefit from lower default and credit risk.
Clients come to us for our honest approach. We accept that the world is not black and white and have built a broad and pragmatic investment offering. Unlike others in the market, we don’t employ mass exclusions. When it comes to energy, for example, we recognise there are shades of grey. We support managers who engage and encourage companies to adopt better practices. We are unconvinced that simply walking away from a sector will galvanize change in the fabric society. We are all change makers now.
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