The 3 Epochs of Sustainable Investing

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Stockholm (NordSIP) – While most people and institutions realise that society needs to focus on ESG issues, many still find it difficult to know what they should do and how. At the recent TBLI Conference Nordic, NordSIP followed the conversation at a workshop which discussed ESG Capacity Building: the 3 Epochs of Sustainable Investment. Participants contrasted their experience, coming from different countries in Europe and beyond.

In some countries, the work to integrate ESG into investment management has come far. Other countries are lagging. To change this, Antje Biber, Managing Partner of German multi-family office FERI Trust, says we need to simplify. According to her, Germany is far behind because too much focus is put on future regulation and how to deal with it. Instead, she would like to see discussions around the purpose of each institution — that way each pension fund could select and work towards the SDGs that mean most to them. Federico Raimondi Slepoi, founder & CEO of Behavioral Economics advisory, also sees the need to simplify the language that surrounds the work to integrate sustainability into asset management. There are too many specialised terms and abbreviations, he says. To convince people, we need to talk about risk and reality, to keep it simple and put names on concrete goals. Attracting attention would thus become easier.

Stephen Fern, Founder & CEO of G9 Private Family Office, has managed to transfer investments for the families he works with, to responsible strategies by questioning the sustainability of every investment decision. Most people buy into the idea of SRI as most people with an abundance of wealth want to do something meaningful with their money, he says. What is the purpose of all the money? According to Fern, it is the most critical question institutions ought to ask themselves. Values determine the choice. By introducing these discussions, ESG can be integrated into the investment process smoothly. He advocates aiming for ‘good enough’ instead of ‘perfect’ to speed up the process.

- Promotion -

To create a concrete and usable model, G9 has developed the concept of ‘Total Blended Return’, which combines financial and non-financial values for discussions and implementation of the chosen strategy. Non-financial and values-driven strategies belong to one four different categories:

  • Responsible Investing = ESG, used for publicly listed companies
  • Sustainable Investing= SDGs, used for publicly listed companies
  • Impact Investing= Direct investments where financial return is weighed against other goals. Investments in private companies doing something good for the world.
  • Strategic Philanthropy=Micro level activities for example seed financing in Africa.

All holdings in a portfolio are linked to one of the four categories, and each one has a specific goal. How many percents of the portfolio should be allocated to each one? What are the goals that the family want to achieve? Goals should be quantifiable and straightforward. Decisions should be easy to make. And all decisions should be evaluated every year. A Total Blended Return (TBR) score is then calculated to allow each family to determine its starting point and to measure the impact of the philosophy on its portfolio. This method is not an exact science, Fern admits, but it provides a simple visualisation of how the work is progressing.  Most of the families working with G9 have adhered to this method and some wholeheartedly to the degree that they have pushed PIMCO and BlackRock to introduce sustainable Fixed Income Funds, according to Fern.

That all ESG-data isn’t perfect seems to be a common view. This, in turn, makes it difficult for asset owners to choose asset managers. Biber proposes to look for boutique managers that take ESG integration seriously. Many of the largest managers can often seem like they merely ‘pretend’ to be integrated, she says, and asks for an ESG sticker, akin to the FairTrade symbol which has become a widespread and trusted household symbol. This wish was quickly appreciated by Morgan Zerne, CEO of Responsible Investors Alliance Sweden, who is leading a project to introduce certification of investment funds and managers in Sweden and the Netherlands under the brand of ESG4Real, an initiative backed by major pension funds in the two countries.

 

Image Courtesy of TBLI ©

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