Moderated by Adrian DEARNELL, Chairman, EuroBusiness Media             

Following the COPs and the One Planet Summit, asset owners and asset managers are at centre stage for climate action. Asset owners’ fiduciary duty on ESG issues is increasingly acknowledged by the global community. The awareness of new generations of investors is rising, and millennials search for a purpose.

The next roundtable opened with short definitions of what responsible investment means to the panellists. Liza Jonson explained that for Swedbank Robur it is engaging with the companies it invests in and their boards of directors and following a strict investment policy with a black list of companies it does not invest in.

Uli Krämer said that in Austria there is a long history of responsible investing, since governments asked pension funds to invest responsibly. Kepler started its “responsible” mutual fund in 2000 and has established a long-standing partnership with a responsible rating agency that provides ratings for companies or countries, and a set of exclusionary criteria.

Magnus Billing said the focus of Alecta is to support a sustainable pension system, based on three pillars. The first two just assure that subscribers get a good pension when they retire. The third is about responsible investment, which is done by investing in a limited portfolio of 100 companies, getting to know their business models.

Valerie Baudson confirmed that ESG strategies are becoming central in the investment process. In a recent survey, responsible investments were worth about $23 trillion, with a growth rate of about 25% over the last two years.Europe has been leading for years, but others are catching up, especially Asia.

« Yesterday, we were asked the question: ‘How can you integrate responsible ESG concerns into your investments?’ I would rephrase that question and ask, ‘How can you not?’ »

Liza Jonson

« Yesterday, we were asked the question: ‘How can you integrate responsible ESG concerns into your investments?’ I would rephrase that question and ask, ‘How can you not?’ »

Liza Jonson

RESPONSIBLE INVESTMENT HAS BECOME A PARADIGM SHIFT AND CUSTOMERS DEMAND IT

ESG investment has been accelerating for a number of years, but we now have a paradigm shift, she emphasized. The new trend is to switch from a pure, negative-screening approach to a more risk-based, long-term approach with institutional investors, and to a more impact-investing approach with retail investors.

Turning to the changing approach to fiduciary duties, Magnus Billing said you have to be loyal to your customers and ensure that you manage conflict of interest situations well. Maximizing returns can be part of that, but you must also consider factors such as ESG. The lack of clarity on fiduciary duties should be codified or clarified on the European level, which would be beneficial for both asset managers and investor consultants.

About 40% of financial assets in the EU are held by EU citizens, two thirds of whom think that ESG factors should be important in investment decisions. This contrasts with pension funds, where only 5% are actually taking ESG into account. This mismatch is a reason to have clarification or codification, he suggested. The bottom line is that the fiduciary duty is to provide a service that your customer wants. The present proposal to the EU Commission from an experts group is to make the time horizon more long-term and to broaden the risk concept to better capture externalities to properly address ESG factors. ”If the clarification or codification of fiduciary duty, combined with incentives, would extend the horizon from five years to 10-15 years, we have gained a lot”, he concluded.

Mr. Krämer picked up on the same points, but for selling ESG enhanced products to retail customers. Since Kepler Fonds does not have direct contact with them it works through local banks, training the staff in the benefits of ESG investing. Once they realize that there is no loss of performance they started selling the products to customers.

« As asset managers, we have to not only provide ESG strategies which maintain risk return profiles, but to provide strategies which in the longterm enhance the risk return profile. »

Valérie Baudson

« As asset managers, we have to not only provide ESG strategies which maintain risk return profiles, but to provide strategies which in the longterm enhance the risk return profile. »

Valérie Baudson

WE NEED TO BETTER DEFINE RESPONSIBLE INVESTMENT

Ms. Jonson pointed out that in Sweden institutional clients are the ones driving ESG investment, not retail clients. “There are no arguments. Their demands are very high and they are pushing us to be more forward-leaning.” On the retail side, while seven out of ten clients say they want responsible retail investments, they are still sceptical because the industry has not agreed on the definition of what constitutes responsible investment.

Mr. Krämer agreed, pointing out that the research tools are available to develop a standardised set of indicators. This would help in assessing the responsible performance of companies and asset managers. Ms. Jonson added that the financial community cannot wait for the perfect metrics. Some companies are starting to align themselves to the 17 Global Sustainable Development Goals, for example. “My dream scenario is perfect data on all metrics and to make amazing heat maps on the different scenarios that happen if I exclude something and invest in something else.”

« It is about taking the myth out of responsible investing – it is standard investing with other values. »

Uli Krämer

« It is about taking the myth out of responsible investing – it is standard investing with other values. »

Uli Krämer

Concerning the SDGs, Ms Baudson pointed out that only about 15% of the $100 trillion dollars available in the asset management industry would have to be used to achieve SDG goals. It is critical to direct this capital toward the solutions, using the right partnerships with public or private entities. One example is Amundi’s partnership with IFC to launch a $1.4 billion emerging market fund for green bonds. This is a great multiplier and add to Amundi’s existing $230 billion in responsible assets.

On what kinds of companies to invest in, the panellists agreed that all can contribute to responsible investment. “If we were to only invest in the perfect companies, not much would change in this world,” said Ms. Jonson. If you really want to make an impact, investors must join together to  tell companies what they need to do to be investable in the long term. “It’s a win-win-win situation: we create better companies and we create value growth for our own investors, and we actually create a better world,” said Ms. Jonson.

Ms. Baudson pointed out that even passive investment through Exchange Traded Funds can promote ESG. To have more of a critical mass Amundi groups passive portfolios with active ones. ESG investment can also be integrated into passive portfolios via filter screening, a best-in-class approach, or through replicating an ESG dedicated index.

Summing up his priorities, Mr. Billing stressed that there is a big shift in the market. Ten years ago ESG was considered a cost and now it is considered a value creator. Properly integrating this into the investment process is a way to capture opportunity in the long term and manage risk properly. It is driven by customers. They demand it and it is part of the fiduciary duty of asset managers to deliver it. To be effective, however, it requires regulatory support and better metrics.

Ms. Jonson added that “If we are going to save this world, it is going to be the financial markets that will push it. So, we have a crucial role to play”. Mr. Krämer asked “what if the awards for asset managers were not just based on financial performance or a risk return matrix but also on ESG criteria? I am convinced that ESG-optimised benchmarks would change the impact of our investments, and much more so than another 1,000 pages of regulation.” Closing out the discussion, Ms. Baudson reiterated that “ESG is and will remain in the Amundi DNA.”

« We need support from the regulatory side and data points from the issuer side, but I think responsible investing is clearly driven by the customer side – they demand it, they want it, and it is part of our fiduciary duty to deliver it. »

Magnus Billing

« We need support from the regulatory side and data points from the issuer side, but I think responsible investing is clearly driven by the customer side – they demand it, they want it, and it is part of our fiduciary duty to deliver it. »

Magnus Billing

THE SUSTAINABLE DEVELOPMENT GOALS – A REFRESHER

The Sustainable Development Goals (SDGs) were created by the United Nations to replace the Millennium Development Goals in 2015. They have been adopted by 193 countries to end poverty, protect the planet, and ensure prosperity for all by 2030. They are targeted at governments, but also at civil society and the private sector. There are 17 SDGs.
1. End poverty (in all its forms, everywhere). 
2. Zero hunger (end hunger, achieve food security and improve nutrition and promote sustainable agriculture).
3. Good health and well-being (ensure healthy lives and promote well-being for all at all ages)
4. Quality education (ensure inclusive and equitable quality education and promote lifelong learning opportunities for all).
5. Gender equality (achieve equality and empower women and girls).
6. Clean water and sanitation (ensure availability and sustainable management of water and sanitation for all).
7. Affordable and clean energy (ensure access to affordable, reliable, sustainable and modern energy for all).
8. Decent work and economic growth (promote sustained and inclusive economic growth, full and productive employment and decent work for all).
9. Industry, innovation, and infrastructure (build resilient infrastructure, promote inclusive and sustainable industrialisation and foster innovation).
10. Reduced inequalities (reduce inequalities within and among countries).
11. Sustainable cities and communities (make cities and human settlements inclusive, safe, resilient and sustainable).
12. Responsible consumption and production (ensure sustainable production and consumption patterns).
13. Climate action (take urgent action to combat climate change and its impacts).
14. Life below water (conserve and sustainably use the oceans, seas and marine resources for sustainable development).
15. Life on land (protect, restore, and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and biodiversity loss).
16. Peace, justice, and strong institutions (promote peaceful and inclusive societies for sustainable development, provide access to justice for all, and build effective, accountable and inclusive institutions at all levels).
17. Partnerships for the goals (strengthen the means of implementation and revitalise the global partnership for sustainable development).