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A dream time
Is sustainable investment – making investments based on environmental, social and regulatory issues – good for portfolios? Or are fund managers “greenwashing” what they are offering gullible investors to follow a trend that skeptics say is little more than a public relations gimmick?
That is the question some debaters ask at a time when investors are adopting sustainable strategies in the highest numbers. The latest version of this debate came in the form of a USA Today op-ed written by a former sustainable investment officer at one of the world’s largest asset managers, who said that “sustainable investment is sinking down to little more than marketing hype, PR spinning and false promises from the investment community. ”The article accuses fund managers of leaking ESG-labeled strategies for goose profits and exploiting climate change concerns.
Allianz Global Investors strongly agrees with these claims because, in many ways, they are, well, hogwash.
The assertion that every asset manager wants to deceive investors with marketing strategies that are sustainable in name only is a broad statement that avoids reality in an attractive headline service.
While we recognize that some asset managers are playing catch and jumping on the proverbial bandwagon, the reality is that ESG is an integral part of the investment processes of some asset managers, including some which has been doing it for over a decade. Here’s the data: While 3,821 UN Principals wanted to hold accountable names this week, most of those came in the last four years. Others have been committed to sustainability for several years. Allianz Global Investors, for example, was one of the first 50 asset managers worldwide to become the PRI ‘s signatory to the DA, joining in 2007.
Interest in ESG investment has been driven primarily by investor demand, rather than some form of market capitalization. Total assets resident in the U.S. managed using ESG strategies, for example, reached $ 17.1 trillion at the beginning of 2020, up 42% from $ 12 trillion two years earlier, representing $ 1 in each $ 3 under professional regulation, according to the US SIF. Importantly, the move towards ESG reflects in particular money that moves between asset managers and / or is redistributed within existing accounts to ESG from before. -Non-ESG strategies, as the basis for a shift in investor preferences rather than a related business ploy.
At the same time, the industry is investing heavily in ESG data, a fast-growing market that is estimated to reach $ 1 billion in revenue by the end of 2021, according to the consulting firm Opimas. Asset managers make up about 60% of that total cost, mainly due to growing demand for more high-level ESG research and analysis.
It is understandable that some investors are skeptical about ESG, as there are no set rates. However, that is also rapidly changing. A CFA Institute 2020 study found that 78% of fund managers want better ESG reporting rates. On March 10, the European Union released the first wave of its Sustainable Financial Disclosure Statement standards for fund managers, a taxonomy that aims to define what constitutes sustainable investment. From an effort to play “dupe” investors, AllianzGI and several of our peers have played an active role in developing these standards with regulators to provide greater clarity to investors. Meanwhile, in the U.S., the Biden administration is now backing making it easier to invest in ESG funds, returning Trump-era policy.
The fact is that many fund managers favor rules that support sustainable investment, especially when it comes to tackling critical issues related to ESG, such as climate change and diversity. Committed fund managers also liaise with investment firm officials to discuss ESG risk mitigation, to push for better disclosures and, where appropriate, to have their agent voted in support of the position. aca. Investors can learn exactly where each particular asset manager stands on sustainability issues in the company’s Sustainable Investment Report.
Finally, saying that ESG strategies must avoid all companies related to fossil fuels is too simplistic. ESG investor Jeff Ubben recently criticized tolerant environmental money for not rewarding carbon-intensive companies that reduce emissions – a situation we share. For example, an active ESG fund may decide to invest in an oil company if it changes its energy mix to include more renewables and less fossil fuels. On the other hand, an ESG manager may choose not to invest in an electric vehicle engine because while the company may have a high “E” score for its environmental benefit, it could have a weak “G” score due to concerns about the company’s governance. structur.
Sustainable investment cannot be classified as a future investment. It is a reality today, just as issues such as climate change, cybersecurity, data protection, workplace diversity and inclusion, and better stakeholder alignment have now been widely accepted as something. essential for better corporate citizenship and social outcomes. If the past few years are any guidance, ESG fund managers will continue to undertake this work to raise standards, increase transparency, and continue to use the power of investment and capital markets to address the issues. key issues facing governments and citizens alike in seeking better risk. -current product for investors. While we agree that practices such as greenwashing are sad, the reality is that committed ESG fund managers – working for investors who trust us to manage their capital – will play a vital role in address the key environmental, social and regulatory challenges we face today.
Matt Christensen is the global leader & influencer investment at Allianz Global Investors. Christian McCormick, a registered financial analyst, is a senior specialist for sustainable investment at Allianz Global Investors.