August 2019

Posted by Anton Murray Consulting on . Posted in 2019

Environmental, Social and Corporate Governance (ESG) is gaining traction as an important and necessary part of investors’ portfolios. Superannuation funds are fielding increased enquiries and pressure from members to be transparent as to how their money is invested around ESG matters. ESG has evolved from mere acknowledgement now to the specific demand for positive social investment outcomes such as investment in health infrastructure and climate change mitigation technology.

Giles Gunesekera, CEO of Global Impact Initiative, indicated that “ESG has been implemented and integrated into the investment process in Europe. They are now moving to deliberate investible impact themes aligned with the values of their investors.”

ESG raises moral questions around comparative value. Certain ESG considerations are absolute, for example the use of child labour. Whereas the lines are more blurred in coal production where thousands are employed. The world agrees that we should be moving towards a greener future, but a good example of where that has got complicated is the recent Australian federal election where the state of Queensland swung away from the Labor party who had a stronger environmental policy, in favour of the Liberals who were keener to support mining.

There has been some debate as to how ESG data can be quantified to be understood in a way that allows investment managers to make informed decisions? Man Group, like many other asset managers, has taken steps towards this goal and have built a proprietary analytics tool that takes ESG data from a number of sources and creates scores for Man’s portfolio managers to assess ESG risk. It seems paradoxical that social, environmental and governance issues could be broken down to numerical signals, given they are almost exclusively issues related to human action and interaction with each other and with the environment. However, as ESG becomes more mainstream in the investment industry, wider and more robust data sets will probably become available making an analytical tool such as Man Group’s more effective.

The simple point is that ESG is not going away. As data becomes more available and more easily analysed, ESG outcomes should gradually become more acceptable. Giles Gunesekera notes, “We’ve already got quite a lot of European interest in ESG. The Europeans don’t need as much convincing that this is possible, whereas Australian investors are conservative.”

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