Can Asset Owners Achieve a 100% ESG Portfolio?

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Stockholm (NordSIP) – The TBLI Conference Nordic 2018 was held November 8-9 at Nasdaq’s premises in Stockholm. With over 200 attendants from around the world, it was an event rich in content and engagement, covering subjects of a wide variety within the ESG area in the form of presentations, panels and workshops.

Still, many asset owners are sceptical towards ESG as they fail to see the return potential and remain afraid of higher costs. This was something that Damian Payiatakis, Director of Impact Investing at Barclays Wealth expressed at a Roundtable which considered whether it is possible for asset owners to achieve a 100% ESG portfolio. In his view, investment managers must learn to run portfolios differently and understand that what they have been learning for decades is wrong. Understanding what clients want to achieve with their wealth is crucial, including what impact they want to have. It is worrying, he said, that there is a lack of transparency as to what different investment managers do and it is difficult to select those that integrate ESG into their portfolios for real. Payiatakis sees a need for critical evaluation, better monitoring and reports. Most people want to make impact investments but don’t know how. It’s up to investment managers to create the right products.

- Promotion -

Carina Silberg, Head of Sustainability at Alecta, described ESG as a moving target and stressed that a detailed knowledge of a portfolio’s content and continuous improvement are crucial. An organisation, she said, has to create a common language in order not to build walls between traditional financial and ESG evaluation. Today Alecta measures carbon dioxide impact from its portfolio holdings, while they develop other impact indicators.

Mikael Angberg, CIO of AP1, explained that even though every investment at AP1 is evaluated from an ESG perspective it is impossible to know if everything in the portfolio is 100% ESG today, but he believes it is better to act on what information is available today instead of waiting for a perfect solution which would impose a higher risk. The speed of new initiatives and solutions is increasing, in part thanks to AI. Angberg is optimistic as more and more institutions, and individuals are willing to take action. In his view integration means working with companies to create different outcomes. ESG integration is a journey that AP1 wants to be part of.

Also on the panel, Jan-Erik Saugestad, CEO of Storebrand Asset Management, refuses to wait for perfect solutions and advocates action today. Today, all asset managers say that they are striving towards ESG, but that is not enough. What is important is what the impact will be. Storebrand incorporates climate risk in all portfolios and the carbon footprint of those portfolios, he said, has already been reduced by 75%. Saugestad pointed to the fact that almost all asset managers today are UNPRI signatories, but few make any real impact and less than 20% incorporate climate risk. So far Saugestad hasn’t received many questions about impact but expects interest will increase going forward. He pointed out that, eventually, it will be possible to see the difference between those who talk and those who achieve a real impact by looking at the results.

The view that ESG restrictions are hurting performance seems to be fading out, several panel members pointed out. Demand for ESG integrating portfolios is rising rapidly, and many asset managers want a part of that business increasing the risk of greenwashing but also competition. For Saugestad one must define its strengths, focus on those and avoid running in all directions. Payiatakis pointed out that all investments have an “impact”, and that must be evaluated in the investment decision. Angberg, for his part, highlighted the fact that impact evaluation of individual investments is often straightforward but aggregating impact at the portfolio level is difficult. He wishes for more homogenous common rules and systems in the industry. Saugestad also asks for better evaluation tools as it is crucial to actively funnel investments into ESG portfolios starting now.

All panellists agree that ESG must and is beginning to become the new normal. As Ylva Lindberg, Engagement Partner of QVARTZ and moderator of the panel so clearly put it: “Don’t wait for perfection. Just do it!”

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In the current economic environment, even the strongest companies will face challenges from the impact of the COVID-19 pandemic. Perhaps now more than ever, understanding the factors that could have a material impact on a company’s sustainability will play a role in investment decision-making.

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