At times, it is easy to forget that we are all long-term savers and pension investors, just like the customers we work with daily. Investing for the future is at the core of what we do as investors and advisors and this becomes even more apparent when we peel back the layers of what responsible investing is and why it is fast becoming one of the hottest topics within our industry.
What is ESG?
The PRI (Principles for Responsible Investing) is the world’s leading proponent of responsible investment. They define it as:
‘a strategy and practice to incorporate environmental, social and governance (ESG) factors in investment decisions and active ownership’.
The ‘E’ in ESG represents areas such as climate change, water scarcity and food shortages, the ‘S’ incorporates important issues such as access to education and health and safety, while the ‘G’ focuses on areas such as gender diversity and corporate ethics.
In reality much of the data behind the rationale for incorporating ESG highlights the challenges our society is facing. As a retail investor, ESG is, in short, about combining our desire for the common good with our long-term economic interests.
Why is ESG relevant for Financial Advisors?
Increasingly, advisors are seeking out ways to incorporate responsible investing into their customer’s portfolios. More often than not, it is the customer requesting this and we are seeing a shift from ESG as a ‘nice to have’, to a fundamental need within the portfolio.
This is not just a growing trend within the Irish retail market. A global investor survey conducted in 2018 (2) had some interesting results:
- 64% of retail investors increased their portfolio allocation to sustainable investments over the past 5 years.
- 82% of retail investors were willing to hold their sustainable investment longer than a standard one.
So, you can take from this that most customers who invest in this area are more likely to invest for the longer-term. I would argue that this could be part of the wider solution to get investors back to thinking long-term rather than focusing on the shorter-term noise while investing.
Why is ESG relevant for Investment Managers?
For the investment manager it has been proven that factoring in material ESG risks during the investment process can help generate a higher quality return stream that is likely to be more stable over the longer-term.
Risk management has become increasingly important to investment managers and incorporating ESG risks into investment decisions has helped gain a better understanding of the risks and opportunities with each company or asset.
In 2019, Amundi published a research study(3), one of the main conclusions was that 2014 marked a turning point, with ESG screening driving outperformance in traditional developed equity markets. Environmental screens had a strong impact in North America and Governance was the key screen in the Eurozone.
Why is ESG relevant for companies?
Access to capital and investment is the lifeblood for all companies. As both investors and investment managers push for a greater commitment to ESG so too are companies and they are demonstrating this through changes to their reporting practices. In reality, this is only the beginning of the journey and there is still a long way to go regarding how companies report. With access to capital and investment becoming more demanding, it will force companies to be more transparent and pro-active when it comes to reporting.
The journey for the retail investor and advisor when it comes to ESG investing is only beginning. We all have our beliefs on this topic, however, there is no denying that it is becoming a core part of the discussion with customers as we start developing their long-term savings journey.
As the leading European asset manager, ranking among the top 10 global players(4), Amundi prides itself on its responsible investing heritage and solutions to help financial advisors manage this journey with their customers.
Head of Retail Business for Amundi Ireland Limited
(Article featured in The ESG Factor newsletter. To subscribe, e-mail: Insights@ESG.ie)
- CPR AM – Climate Action, Invest for your future act for the planet, Jan 2019
- Schroders, 22 000 people surveyed in April-18 from 30 countries, investing at least €10k in the next year / * Schroders Global Investor Study 2016
- The Alpha and Beta of ESG investing, Thierry Roncalli, Vincent Mortier, January 2019
- IPE “Top 500 Asset Managers” published in June 2020, based on assets under management as at 31/12/2019
Unless otherwise stated, all information contained in this document is from Amundi Asset Management S.A.S. and is as of 20 July 2020. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management S.A.S. and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results.
Date of first use: 27 July 2020. The content of this document is approved by Amundi Ireland Limited which is authorised and regulated by the Central Bank of Ireland.