March 2022
ESG burnout is unsustainable
Mental health and wellbeing support have been taken up a notch since the pandemic, but can healthy corporate culture win out before we burn out?
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A little less conversation, a little more action, please
With a growing number of groups talking about diversity and sharing their aspirations to have a more inclusive culture, it would be fair to conclude the industry has come a long way from being almost taboo a decade ago. But, as you will read in the articles in this diversity and corporate culture-themed March issue, what has been achieved is a mere drop in the ocean when compared with where we want and need to be. At risk of this being another ‘more work to be done’ piece, it would be great to see more investment firms ramp up their activity, instead of tweaking around the edges. Bhavini Shah, CEO of City Hive, highlights in her video and Q&A that asset managers and fund selectors have a lot of clout in terms of moving things forward, either with their shareholder votes or the strategies they include in portfolios. One stat that stood out for me was from the Mercer comment written by Michelle Sequeira as an indication of recent progress – the proportion of women in leadership positions on FTSE 100 boards is at an all-time high, at eight out of 100 CEOs. I won’t be hanging out the bunting to celebrate that ‘high’ any time soon. Of course, it’s not just gender diversity that is seeing snail-pace progress. This month’s ESG Clarity Intelligence page highlights the social injustices that are occurring and why the risks associated with this are so poorly understood by financial firms. Meanwhile, Numis’ Gb Ladipo shares some shocking racial prejudices he has faced in the industry. Nonetheless, credit where it’s due and you can read about some excellent examples of groups celebrating their LGBT+ employees in the ‘Embracing inclusivity’ article and our cover feature is on a topic close to my heart – mental health. Investment organisations are doing to some great things in this area. The industry does, however, need to take a massive leap forward. Less talking and marketing around diversity, more investment and action, please, and hopefully the articles in this issue will be the catalyst and inspiration needed to see the uplift necessary to take us to the next level of inclusivity.
Natalie Kenway Global head of ESG insight, ESG Clarity
Spotlight
COVER feature
Mental health and wellbeing support have been taken up a notch since the pandemic, but can healthy corporate culture win out before we burn out? Christine Dawson reports
Quilter’s head of DEI Tosin James-Odukoya discusses why she isn’t interested in diversity marketing and the need to stop talking about ‘culture fit’
‘The industry is anti-diversity’
City Hive’s latest project is the ACT framework, encouraging firms to become more transparent with their internal and external values as fund buyers look further than product returns
Looking inward
Also in this issue ...
Real diversity will only be attained when organisations consider issues of demographics and intersectionality alongside gender
Focus on true equity
Retention rates give a fuller picture of an inclusive workplace culture rather than simply focusing on boardroom diversity and equality
Retention reporting deficit
Numis’ Gb Ladipo shares stories of unconscious biases inside and outside financial services
‘Let’s be bold in setting diversity targets’
Exploring initiatives companies are getting involved with to be LGBT+ inclusive at work and beyond
Embracing inclusivity
How the US’s rule-making and processes on diversity, equity and inclusion is leading the charge
Lesson from the US
Responsible investors are not spoilt for choice when it comes to the IA UK All Companies sector though the funds that do exist have deep roots
Slim pickings
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A growing body of evidence supports the system-wide benefits and long-term value of social and economic inclusion – and active investors have a vital role to play
The push for justice
ESG clarity intelligence
ESG Clarity and Bonhill Intelligence dig into the Morgan Stanley Global Brands Fund to find out how DEI considerations inform stockpicking
DEI checklist
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Navigate the ESG universe
BNP Paribas Asset Management busts some common myths
The six myths of thematic investing
Baillie Gifford’s Kate Fox and Lee Qian explain how responsibly deployed capital can be a powerful mechanism for change
Positive change
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Working in ESG can mean helping address some of the biggest problems humanity has ever faced, but there are questions over whether the sector is caring for itself enough in order to keep up the good work. Changes in ESG investing are fast. In just the past few years, professionals have tackled rapid development in regulation, mounting consumer pressure, heightened client demand, rising litigation and global crises including a pandemic and war. From that perspective, it is not surprising the term ‘ESG burnout’ is being discussed more frequently. Quilter Investors’ head of responsible investment Eimear Toomey says she has heard discussions around ESG burnout and recently shared her own experience of struggling with a deep connection to the issue of climate change with ESG Clarity. Toomey decided to enrol in an academic course on the subject in order to understand it better, but soon found the picture the science painted was affecting her emotionally. “I found it difficult to switch off and I almost felt guilty if I wasn’t researching or doing something, because I realised how pressing climate action is right now, and also began to comprehend the gap between government action and where we need to get to,” says Toomey. She says what helped manage this was talking with those on her course and finding the reaction was common to many of them.
‘The fact we’ve started having this open dialogue in itself is really important’
Eimear Toomey, head of responsible investment, Quilter Investors
The little things Being unable to switch off is a core part of what causes burnout – consistent and compounding stress. According to Mental Health UK, this can lead to physical and emotional exhaustion in the form of fatigue, feelings of helplessness, self-doubt, isolation and overwhelming negativity. The American Psychological Association warns about the impact chronic stress has on the body. It can lead to increased inflammation, a weakened immune system, heightened risk of heart disease, chronic fatigue and metabolic disorders such as diabetes and obesity. When you consider this, small opportunities to manage stress and switch off start to look more critical, yet the pandemic has made it even harder to draw boundaries around work. Invesco global head of ESG Cathrine de Coninck Lopez acknowledges the lines became blurred during the pandemic when the commute to and from the office was taken out of the picture, something experienced by so many of us. “Making sure your boundaries are clear in terms of when you start, when you stop, that for some people during the pandemic became more fluid.” She encourages her team to ensure they set those boundaries. Downing head of human resources Shruti Patel also talks about how her firm has been managing this issue during the past two years. She says the pandemic had been a wake-up call on mental health for organisations that have realised they have some gaps in this area and started taking a much more proactive approach. While previously it relied heavily on outsourced mental health support services for staff, the business began actively encouraging staff to discuss how they were getting on. “We set up a group of mental health champions and provided them with mental health first-aid training. They sent anonymous surveys to staff asking, ‘How are you feeling? What could we be doing? What would you benefit from?’ “We’ve looked at providing managers with training around how to support people or to identify those that might be having mental health challenges, and how to have conversations around bringing them to the forefront,” says Patel. Downing has also been offering drop-in sessions and talks to help people look after their mental health and wellbeing more broadly, setting an example for the rest of the investment industry. ESG teams take the burden The issue of mental health and burnout are clearly not isolated to ESG teams or financial services, but there are some ways employers can help their ESG employees. De Coninck Lopez acknowledges these teams are sometimes tasked with the overwhelming challenge of managing all a fund group’s ESG work, rather than the project being something embedded across the company. “An ESG team sitting in isolation could definitely cause ESG burnout. We do it slightly differently in that we have an integrated model where we sit as a centre of excellence but every investment team owns their process. Investment teams do their own voting.” When it comes to the challenge of working with climate science and the bleak outlook it paints, Quilter’s Toomey says asking her own team about how this impacts them started a useful conversation. “Two of the team were parents, and they said it was massively impacting them because it really made them think about their responsibilities as parents. They’ve brought their children into the world, and it’s their children that will really suffer from the impact humanity has had on it. “I think the fact that we’ve started having this open dialogue in itself is really important,” Toomey says.
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Click here as ESG Clarity’s Natalie Kenway shares her recent mental health struggles
32%
27%
68%
Share of people who say they are more comfortable discussing their workplace mental health since the pandemic Source: Mental Health First Aid England
Percentage of people in the past 12 months who say their employer offers monthly wellbeing check-ins, down from 60% earlier in the pandemic Source: Mental Health First Aid England
Share of Gen Z who are anxious about climate change, compared with 63% of millennials, 62% of Gen X and 65% of baby boomers Source: Bupa
‘Great resignation’ As we witness what is being coined the ‘great resignation’, employers will be acutely aware of the options staff have to find work elsewhere if they do not feel supported in their role. Last year, following enforced lockdowns and working from home during the pandemic, many people took stock of their priorities and realised they valued a better work-life balance, including more flexible working. This contributed to 4.4 million Americans quitting their jobs in September of last year alone, according to a survey by financial services research company Jefferies. Respondents cited reasons linked to compensation as the top motivator for leaving, but burnout and being overworked were the second most common reasons and lack of flexibility was third. And it may be harder to retain staff in ESG teams in particular. Tom Strelczak, founder of independent search firm TWS, points out ESG professionals are aware demand for their services is currently far exceeding supply, causing salaries and turnover to rise. “In the past, it wasn’t seen as something that was worth paying for. But now those that have been doing ESG in some capacity for the past 10 to 15 years and never moved have realised they are probably worth double in the market what they used to be,” he says.
An ESG lens If there is any doubt left about the fact good mental health support makes good business sense, Bupa has reported mental ill-health costs UK businesses £45bn a year. Employers only need to look to the younger generation coming into the workforce to see how care for staff is going to become more of a business imperative as time goes on. For Gen Z, those born between 1997 and 2012, two in three (68%) say they are already anxious about environmental issues, according to a survey by Bupa. The study notes this is more of an impact than on any other age group. Adding climate science into the picture, the International Panel on Climate Change says there is a more than 50% chance we will meet or exceed the 1.5C of warming between 2021 and 2040. Climate anxiety may be low on companies’ agendas now, but could well be a staff retention issue in a few years’ time. Whichever climate and recruitment scenarios pan out, boundaries are going to be the Holy Grail. Whether they get blurred because we are overwhelmed with the scale of a challenge or because of a practical change like no longer having a commute – stress manifests in unwelcome ways if there is no respite – and working in sustainability will quickly become unsustainable.
The way the wealth and investment industries work is “anti-diversity”, according to Quilter head of inclusion, diversity and wellbeing Tosin James-Odukoya, who in an interview with ESG Clarity said education, leadership buy-in and accountability will continue to be needed to reshape practices that are not conducive to inclusive workplaces. With more than 10 years’ talent acquisition experience, James-Odukoya joined Quilter in June 2021 and has been working on the firm’s diversity and inclusion action plan, which will launch next month. With the firm’s pre-tax profits up by 28% to £138m last year, CEO Paul Feeney has said it’s looking to bring in more people, so an action plan for doing this inclusively is vital. “The biggest issue in our industry is the fact our practices are anti-diversity,” James-Odukoya says. “It’s about who you know or helping someone’s son, it’s all done via leads.” Beyond the virtue signalling Restructuring the industry is no small task, but James-Odukoya is approaching it from several angles. Quilter’s upcoming action plan focus will be on accountability and education, “holding our executive committee and board to account and our middle managers”. The drive has to come from leadership otherwise a firm’s marketing in the area feels hollow and changes won’t actually be seen, she says. “I’m not interested in the marketing,” she adds. “A picture of a white woman, a black woman, someone in a rainbow T-shirt – it doesn’t mean anything unless people in the business feel they belong.” Another focus, she adds, will be to stop talking about ‘culture fit’ and instead talk about ‘culture contribution’, in order to address some of those anti-diversity practices. If this does all sound a bit marketing-ey, Quilter can at least back itself up with data. In 2020, its senior leadership team comprised 35% women, 36% in 2021 and it now has a target for 38-43% by the end of 2023. Ethnic minority senior leadership was 2% in 2020 and 5% in 2021. Human resources director Penny Cole took up the role in September last year, bringing the number of c-suite women executives now to two, out of a total seven. Despite the UK government dragging its feet on the mandating of ethnicity pay gap reporting, Quilter has continued to report this voluntarily, reporting on 80% of the workforce and hoping to push this to 90% across all areas of diversity and inclusion. Watch the video interview with James-Odukoya for more on ethnicity pay-gap reporting.
By Natasha Turner
‘A picture of a white woman, a black woman, someone in a rainbow t-shirt, doesn’t mean anything unless people in the business feel they belong’
Data, targets and the need for change “There’s always a hesitation [when you ask people for data],” James-Odukoya says. “I’m having conversations all the time about the purpose of it and what we’re doing with it. But if you can’t report and prove you’re doing the right thing then there’s a problem. “We report on the pay gap but that’s not driving much. What we actually do with the data is look at the gaps every year in our end of year reviews, we look at salary disparities. Managers know what the gaps are in their teams. The worry, especially for people of colour is, ‘I believe I am underpaid but I don’t know for sure’. This needs to be documented.” Targets are necessary to be held accountable for change, she says, as is the buy-in from leadership, rather than having diversity and inclusion spearheaded by those already passionate about it or confined to the realms of human resources. James-Odukoya is quick to praise the leadership at Quilter, saying they sometimes want change faster than she can enact it. If this is the case, is she actually given enough resources? Do leadership fully appreciate the gravity of these changes? “I joined Quilter for a reason,” she says. “Leadership do lead on this; they haven’t just hired someone for the job. Often people in roles like mine feel quite alone but if I need resources, I am getting it. I’ve seen my team grow and I’ve been here less than a year.” Finally, she says the push is coming from clients, and the growing understanding there’s a negative business impact to not changing. “More and more clients are asking what we’re doing for diversity,” she says. “People now really understand that if we get this right and people of all backgrounds are thriving, that leads to a progressive society.”
Click here for Tosin James-Odukoya’s biography
Tosin James-Odukoya’s biography
Tosin James-Odukoya joined Quilter in June 2021 and is head of inclusion, diversity and wellbeing. She was formerly global diversity and inclusion lead and senior recruitment business partner at GSMA.
Click here to see 2020 pay gap data
2020 pay gap data
Tosin James-Odukoya, head of inclusion, diversity and wellbeing, Quilter
What are some good examples of corporate culture improvements you have seen within investment management? People are certainly shuffling in the right direction and small bits of investment is happening. It’s not at a large scale or what’s needed in terms of action, but those small actions of developing people and thinking about different wants and needs is happening. There are pockets of different professional development programmes and mentoring schemes, they’re not sexy or headline-grabbing, but that is the hard work that needs to be done. Still, it would be great to know how much money is being spent on data and on being included in different gender equity indexes etc, verses the spend on developing talent within your organisation, and the recruitment spend on plastering over things by poaching from other firms versus developing the talent firms already have. Corporate culture has been discussed a lot but in a context that it is difficult to measure. Is this just an excuse? Who are the best analysts? The ones that recognise investing is an art not science and evolving culture is the same. Looking at the data is not the quick fix, the data will come through later. We need to understand holistically what is going on. We are an industry obsessed with measuring, benchmarking and indexes, but those are simply the by-product of action, of someone doing something qualitative. That’s where we hope the ACT framework will help because it will enable companies to actually talk about what they are doing because the reality is not as grim as we think. Some companies are doing really great work internally but there’s nowhere for them to talk about it and share with their peers. There is no real way to measure it and that’s where the market and fund buyers come in. They are the ones deciding, who can look at this and analyse whether they want to invest in a firm or not. It goes hand and hand with ESG credentials and sustainability. It’s the ‘S’ of ESG. See the video interview where Shah discusses industry progress on corporate culture and impact of the ‘great resignation’.
By Natalie Kenway
‘The ACT framework will enable companies to talk about what they are doing because the reality is not as grim as we think’
Tell us more about the ACT framework. It is launching in Q2 and is about looking at an investment company’s corporate culture. There is no one-size-fits-all mould, there is no right or wrong. To affect change we need to look at it holistically; look across an entire organisation and assess against the values they say they have, what they are doing externally and internally, and how they are behaving through their investment practices. Greenwashing is happening, not just on the topic of the environment but on diversity. If you are saying your company values are integrity or ESG, demonstrate how you are doing them, how you are improving and building on them. The ACT framework enables a company to really look at where they might have gaps and to transparently report to professional fund investors. We have started to see manager research teams embed this into their research. For years they have tended to look at funds as a product, but it is actually much broader than that and a company’s culture impacts the underlying investment returns. With ACT, we are not looking to do analysis on the corporation, but help improve transparency and enable analysts to be able to look at this information and decide whether you are doing the right thing or not. It’s not City Hive telling you whether you are doing the right thing or not. We ourselves have our own biases in the way we look at things, so we want to be able to help all organisations regardless of size or legal structure to move in the right direction by letting your clients tell you whether that is right or wrong. When you have been talking to groups about this, what has the response been? Is there any hesitancy? We have been surprised at how positive the response has been. We have founding signatory firms who want to commit to ACT and are not scared to be transparent with clients about the action they are taking. In the conversations we are having they feel comfortable, not because it’s easy but because it’s not a judgemental framework. It’s a case of how it sits for your company rather than benchmarking against others. They can go through the framework in a linear way, and it will enable the c-suite and other leaders to see where there are gaps in the organisation. They can upload their response to the Door DDQ platform for clients to view. The framework is governed by a stewardship council of fund buyers who will guide it at the right speed. We want it to be attainable, but at the same time pushing firms to move forward. How are you hoping the ACT kitemark will implement change across the industry? In a similar way to the UN Principles for Responsible Investment, where we saw firms signed up on the first day and committed to do the right things, we have seen how things have avalanched in the ESG space since that was signed more than a decade ago. The part that has been missing is looking internally within the industry, the missing ‘S’ – we think this will be the same. Groups will proudly display the ACT logo to show what they are doing and that they’re committed to living their values. To get involved with ACT email HQ@city hive.co.uk
Click for more info on the ACT framework
ACT framework
Bev Shah, CEO and founder, City Hive
Bonhill’s Campaign for Better Governance, is run by ESG Clarity, International Adviser, Portfolio Adviser and DiversityQ to encourage the investment management community to consider it’s own governance at a time of increased scrutiny on ESG investing.
The framework is comprised of three key pillars and each pillar has three components that will drive positive behaviour. Each of the pillars is designed to give an oversight into how a company is integrating a stategic approach to developing its culture to ensure an inclusive, diverse and equitable environment that enables sustainable progression.
Name Name, job title, Company name
‘I am who I am’
Gallery
“Aegon Proud organises a year-round spectrum of events aligned to the key dates in the LGBTQI+ calendar,” says Ross Bradley-Rae, global head of enablement at Aegon Asset Management and co-chair of Aegon Proud. “These include Pride events in Edinburgh and Essex, and globally we support National Coming Out Day in all our offices as well as the introduction of LGBTQI+ Allies. “Representing Aegon at Pride events is important for me as it continues to reinforce that I am who I am, whether that be at work or in my personal life, and it feels great that my employer allows me to be my authentic self. “I find it so rewarding when colleagues thank me for giving them that nudge to get involved.”
Advocate for equality
Each year on 17 May, DWS supports International Day Against Homophobia, Transphobia and Biphobia. All colleagues are encouraged to wear something purple for the day to show their support. Another more recent project was the DWS Insights Podcast: Beyond the Binary, which is a DWS Pride Network & DWS Black Leadership Alliance initiative on gender identity and exploring related themes. DWS also invites speakers to share insights, break down stereotypes and act as an advocate for LGBTIQ+ equality. Recently, Nicola Adams (pictured below right, in blue), who won the first female gold boxing medal at the London 2012 Olympic games, hosted an event for colleagues. DWS is also tailoring policies to be even more inclusive, developing transition guidelines for managers, as well as an inclusion manager handbook and terminology guide.
Driving allyship
“Everyone should be able to be themselves and having a more inclusive workplace means better outcomes,” says Ori Chandler, head of inclusion for Aviva. “We recently launched Aviva Pride’s Allies Guide, which has specific content for employees to learn more about being an ally for trans and non-binary colleagues. “Aviva offers parental leave policies regardless of sexual orientation, transitioning policies, workplace adjustment policies, guides for being allies and more. “Looking ahead, our Pride Network will be hosting a range of activities and events to inform and educate our people and drive allyship across the business and we will continue our sponsorship of the Dive In festival.”
Image cormac70 @Wikimedia Commons
Image Mercedes Mehling @Unsplash
Lessons from the US
ESG investing in the UK and EU can appear more progressive than in the US, yet the country’s rule-making and processes in the area of diversity, equity and inclusion has proved it can also lead the charge
ESG investing in the US appears to be dragging its feet by comparison with the UK and the EU – at least that was what it seemed to us when the ESG Clarity editorial team travelled to the east coast last month to expand our reporting in the region. So, it was a surprise to find that in at least one area – diversity, equity and inclusion (DEI) – US investors and regulators appear to be ahead of the game. Perhaps this shouldn’t be so surprising. Racial tensions, drastic wealth disparities and the lack of social safety nets make inequality in the country painfully evident, and therefore hard for companies and their investors to ignore. This has led to some progressive rulemaking and processes the UK and EU could, and has, learnt from. For example, in ESG Clarity’s March magazine last year, also on diversity and inclusion, we reported how the Financial Conduct Authority (FCA) was planning to take a leaf out of the Securities and Exchange Commission’s (SEC) book and potentially require listed companies to have at least two diverse directors. Around the same time, the SEC’s Asset Management Advisory Committee was considering diversity disclosure from mutual funds, in part due to broad market and investor interest. “In the US, we have seen the Nasdaq take the lead with its listing rules,” FCA CEO Nikhil Rathi said at the time, acknowledging the country’s preeminent role. Meanwhile, while the UK government drags its feet on mandating ethnicity pay-gap reporting, the US has had workforce composition reporting since at least 1972. EEO-1 reporting – equal employment opportunity reporting for companies with 100 employees or more – is a mandatory annual data collection that provides a detailed snapshot of the workforce by race and ethnicity at each level of the company, Catherine Winner, global head of stewardship at Goldman Sachs Asset Management, says. “It’s not the perfect form, but at least it’s something,” she adds. Industry initiatives The investment industry itself is also pushing the agenda. At Goldman Sachs, Winner says the firm has raised its expectations around what boards should look like in terms of race and gender, for example, requiring 10% of women on boards up from just one woman, and will be voting against companies with all-male boards. “We use the board conversation to get in the door, but we’re also engaging companies on their entire workforce composition,” she adds. Similarly, Caitlin McSherry, vice-president and director of investment stewardship at Neuberger Berman, says this year the firm will be requiring ethnicity disclosure, or it will be taking voting action. It has also set a gender diversity at board level target at 30% by 2023. “In 2022, we’ll take proactive action on shareholder views,” she says. Finally, industry bodies are also stepping up to ensure firms are practicing what they preach to companies. In February, the CFA institute published a voluntary code for investment companies in the US and Canada to promote diversity and inclusion within their own practices. The first 16 signatories, representing $4trn (£3.03trn) in assets under advice and more than $2.5trn in assets under management, were announced in March and include CalPERS, Cambridge Associates and Northern Trust. Firms that sign up must commit to furthering DEI across six principles that ‘drive cultural change’. These are: pipeline, talent acquisition, promotion and retention, leadership, influence, and measurement. The CFA Institute said it chose the US and Canada as the first countries for the initiative in part because of demand for action on racial justice that exploded following the murder of George Floyd in 2020, and growing attention on rights for indigenous people in Canada. “Over successive generations, the investment industry has lacked the knowledge, experience and, frankly, motivation to build DEI into the framework and culture of organisations. That is now changing,” Sarah Maynard, the institute’s head of external DEI, said in a statement. “Increasingly, responsibility for DEI is moving to business owners with DEI goals embedded in long-term business strategy. There is no finish line, and effective change will require iterative, continuous improvement with commitment from every individual.” Those that opt to sign the organisation’s new code will be asked to provide annual progress reports, confidentially and data from which the group will compile industry-level statistics. Within two years of signing, members must show: they have a DEI policy and statement; senior leadership ownership and oversight governance process; and a plan to integrate DEI. All this is not to say US companies and investments are doing particularly well on diversity and inclusion, with some targets still lagging behind parts of Europe, but with “some very unique issues”, as one ex-PRI employee put it, come opportunities for progress.
‘Increasingly, responsibility for DEI is moving to business owners with DEI goals embedded in long-term business strategy’
Sarah Maynard, head of external DEI, CFA Institute
Click for the regulatory activity timeline
June 2021 The SEC announced plans to propose and finalise new disclosures on board diversity as part of its rulemaking agenda. July 2021 The SEC’s sub-committee on diversity and inclusion (under the Asset Management Advisory Committee) documented the need for stringent mutual fund requirements on diversity and board diversity disclosures related to racial and gender diversity. August 2021 The SEC approved Nasdaq’s proposal to set baseline disclosure requirements on board diversity and impose a comply or disclose requirement. Ongoing New state rules such as SB 826 and AB 979 taking effect that require minimum levels of gender and race diversity, respectively. Ongoing Various bills in Congress proposing increased diversity on corporate boards (eg HR 1277 Improving Corporate Governance Through Diversity Act of 2021). Source: Deloitte 2022 investment management
Gb Ladipo, investment director at Numis, shares stories of unconscious biases inside and outside financial services, and explains why these are also part of the answer
Every ethnic minority role model has a fistful of personal stories about discrimination, but when Gb Ladipo is asked about his, he turns first to a passage from Nelson Mandela’s epic biography Long Walk to Freedom. “He was sitting on a plane taking him from Ghana to Ethiopia in the 1960s and saw with alarm the pilot was black. He’d never seen it before. He’d become so conditioned to racist stereotypes in South Africa that people of colour were not capable of flying – and his sense of panic was an extreme case of unconscious bias. That anecdote really struck me.” Unfortunately, the director at investment bank Numis is not lacking of such stories from his own life. Like many who have battled prejudice and adversity he has too many tales – from the former boss who asked if he was a drug dealer, to vivid memories of his father sitting him down as a child to explain the necessity of working twice as hard in life to fight perceptions, due to his skin colour, that he would be “lazy” and “not smart”. Stories to empower But stories can also be the answer, in Ladipo’s view, of what needs to change to create better diversity in UK business, especially in the financial services industry. “Tell your stories. Make it known that these things happen. Use these stories to empower people to stand up for themselves,” he says. This is the very purpose of reboot. – sharing tales of adversity and success to build knowledge and understanding. It’s something Ladipo has seen first-hand. “I’d been asked to give a talk in one of my previous jobs to a group of young black men, around 16 years old. One of them gave a bit of feedback that will always stick with me. He said he enjoyed the talk, which was nice to hear. He added the talk had instilled a belief he could make it, which was incredibly rewarding. But the thing he said nex t really gripped me, because he stated: ‘Success seems attainable when success looks like you.’ I think about that all the time. Because that’s what it’s all about.” Sharing stories can inspire the next generation, and senior leaders have the chance to create a smoother path for aspiring young ethnic minority individuals. See below for the video interview with Ladipo. Targets for change However, stories are only a part of it. If society really wants to change, it needs targets, Ladipo points out, despite current debate around the use of quotas in improving diversity. Ladipo says financial services are used to targets. In fact, they can’t operate without goals for revenue, clients, performance, profitability … the list goes on. “If we want to change we need to look at where we are in terms of diversity and set targets for where we should be in three, four, five years’ time. This enables companies that want to make the change to benchmark their progress. And for companies that don’t want to change it gives them a goal to aim at – and blows excuses that the applicant pool isn’t diverse out of the water.” It’s going to take time to make the financial services sector a true meritocracy, but conversations about diversity within a race and ethnicity perspective are happening that weren’t taking place even a few years ago – and this is progress, he adds. Ladipo would like for there to be more momentum, so that anyone from an ethnic minority background coming into the industry will see more role models and more opportunity to be successful. ESG Clarity and DiversityQ are exclusive partners with reboot. on this video interview series.
‘A 16-year- old black student told me “Success seems attainable when success looks like you”. I think about that all the time’
Gb Ladipo, investment director, Numis
Click here for Gb Ladipo’s biography
Gb Ladipo’s biography
Gbolahan Ladipo is director of growth capital solutions. He brings more than 14 years of experience in providing clients with M&A advice on both buy and sell-side transactions at companies including UBS, Hawkpoint and most recently at Nomura, where he ran the sell-side business in Europe, Middle East and Africa. Ladipo’s current role is to originate and lead day-to-day execution of all key growth capital solutions transactions, across a range of sectors.
Click here to read about reboot.
reboot. was set up by a network of black, Asian and minority ethnic professionals in the financial services industry to redefine the corporate world by: • taking control of the narrative; • altering perceptions and inherent biases; and • deleting racial inequality in the workplace.
Chris Wilson Founder, Trequartista Consulting
Real diversity will only be attained when organisations adopt a holistic approach that considers issues of demographics and intersectionality alongside gender
As a society, we are becoming more aware of our biases, but we are still seeing a lag in the progress of organisations as they continue to focus on some but not all women. Most organisations aiming to achieve gender equality only consider women as a collective group. When they create their people strategy and set targets, there is little evidence that demographics beyond gender is considered. As a result, challenges left unaddressed are those faced by women who are also part of other demographics, such as being racially and ethnically diverse, a part of the LGBTQ+ community, trans, neurodiverse and/or having a disability. This has led to inequities. For example, research by the London School of Economics shows that UK-born black women are least likely to be in the top 1% of earners, even when compared with other minority ethnic groups. A study by the UK government identified that 67% of trans respondents had avoided being open about their gender identity for fear of a negative reaction from others. Yet the proportion of women in leadership positions in FTSE 100 boards is at an all-time high, at eight out of 100 CEOs. Facing challenges head on A holitistic approach to diversity and inclusion is necessary to address these intersecting challenges. Organisations must engage their workforce, identify the challenges using data, take action to implement policies, and be accountable by setting goals and measuring progress. Organisations will need to focus on true equity in opportunity, experience and pay. Support women in their career progression to address the bottlenecks and ceilings women face. Look beyond gender pay and pension gaps, and measure ethnicity, disability, LGBTQ+ and socioeconomic pay gaps. These gaps often highlight issues beyond pay such as difficulties in hiring and progressing women. Consider increased flexibility and family-friendly leave provisions to improve retention rates and make for a more sustainable workforce. Plan of action Here are five actions you can take now: • Collect and use data to consider intersectional disparities. • Review policies and processes from a wider diversity perspective. • Understand the employee experience with the help of employee listening tools. • Prioritise initiatives and do a few things well as opposed to boiling the ocean. • Upskill leaders and managers to empower them to make a difference.
Michelle Sequeira UK diversity, equity and inclusion consulting leader, Mercer
‘Prioritise initiatives and do a few things well as opposed to boiling the ocean’
Responsible investors are not exactly spoilt for choice when it comes to the IA UK All Companies sector though the funds that do exist have strict criteria and deep roots
Given the make-up of the UK equity market, the IA UK All Companies sector does not really provide a rich source of ideas for investors seeking responsible investment solutions. However, that does not mean to say the fund managers operating in the sector overlook ESG factors when analysing/investing in companies. With the benefit of being able to interact with company management teams far more easily than a UK-based Asian equities manager for example, engaging with firms has been a key component of a number of managers’ investment approaches for several years. Many would argue, and rightly so, that the governance aspect of ESG analysis has been front and centre to the way they run money long before ESG was a thing. So why then is there so little choice? Aside from clearly being a sector that invests almost exclusively in one geographic region, the peer group’s make-up is not overly helpful either. Some of the longer-established strategies within the sector merely operate on an exclusionary basis, meaning the ‘sin’ areas of oil and gas, basic materials and alcohol and tobacco producers/distributors, as well as certain banks and healthcare stocks are often considered uninvestable. This is a sizeable chunk of the UK market and so the result is a far smaller universe of stocks, typically further down the market cap scale. Exclusions-based strategies do remain a valid option for investors, but to really affect change the investment community needs to engage with firms and hold them accountable for how they run their businesses, and this cannot be done by merely ignoring them. The counter argument to this could be that the issue becomes subjective. For example, do investors ignore one of the UK’s largest companies, Shell, on account of it being a multinational oil and gas business, which over the past 30 years has been one of the biggest producers of greenhouse gases on the planet, or do they engage, drive change and ensure Shell is one of the leaders towards transitioning to alternative energy sources? You decide. Aegon Ethical Equity The fund management teams at Aegon Asset Management has been a long-term believer in ESG investing, having managed ethical funds for more than 25 years. Its investment team are dynamic responsible investors and have a commitment to active stewardship of assets on behalf of clients. The firm offers investors a range of strategies, many of which must meet strict ethical requirements, such as the Aegon Ethical Equity Fund. Launched in 1989 and managed by Audrey Ryan (pictured) for more than 20 years, the focus of the fund is on growing the capital value of investments over time through a portfolio of UK equities that meet the fund’s strict ethical criteria. This ethical screen puts the fund’s potential investment universe through a ‘dark green’ filter, which combines an external screen from Eiris, a leading global provider of ESG research, with one that has been developed internally. This has been designed to remove companies that are heavily involved in activities deemed unethical or that have a negative impact on the environment or society, such as animal testing, nuclear power, alcohol production and genetic engineering. This ‘dark green’ approach sets the fund apart from many of its ethical peers, some of whom use a slightly more subjective framework. The team also benefits from an independent ESG team, who oversee these ethical screens and are responsible for the analysis of relevant issues in these areas to help inform all investment decisions made for this strategy. EdenTree Responsible and Sustainable UK Equity EdenTree has long been a pioneer in the world of responsible investment. The group’s heritage of being the investment division group owned by a charitable trust has undoubtedly helped to establish this pioneer status and the firm’s mantra of ‘profits with principles’. This approach is core to everything the EdenTree team does and, we believe, sets them apart as a market leader in this space. Their approach is focused on the firm-wide belief that long-term returns are more likely to be achieved by investing responsibly in businesses that can generate returns, while avoiding harm and positively contributing to society and/or the environment. The co-managers, Ketan Patel and Sue Round (pictured), seek to only invest in high-quality sustainable companies that must undergo a three-stage screening process before being considered for investment. The first stage is a negative screen, based on ethics and values, which removes companies that have a negative impact on society, those who derive more than 10% of their profits from activities such as alcohol, tobacco and/or weapon production, gambling, high interest lending, etc. Next, they are subject to a positive screen, which focuses on six responsible investing and ESG factors, such as how a company manages its environmental impact. Finally, there is the sustainability or thematics bias screen, which consists of four investment themes: education, social infrastructure, health and wellbeing, and sustainable solutions. The responsible investing factors take precedence within the investment process, and if a company does not pass the screening process, or fails to stand up to the team’s scrutiny, it cannot be invested in, something which not many in the UK market can attest to. This fund offers investors access to the work of a highly credible process and team, both in terms of its manager and the broader team, whose company and thematic analysis is both extensive and incredibly detailed. Ninety One UK Sustainable Equity As a highly passionate responsible investor, Matt Evans (pictured) wanted to create a truly differentiated offering by providing investors with access to a fund that, through investment in UK companies, is directly contributing to a more sustainable future. He has successfully achieved this goal through the Ninety One UK Sustainable Equity Fund, demonstrated by a credible and durable investment philosophy and process. The investment philosophy is centred on three pillars of sustainability that guide the team in identifying and assessing the investible universe. First, the internal sustainability pillar focuses on the company in order to establish whether it behaves as a responsible corporate citizen. The team then considers financial sustainability and whether the business can continue to deliver returns over the long term. Finally, the external sustainability pillar seeks to establish the impact a company’s products and services have on society and/or the environment. These pillars feed directly into the investment process, which is applied via a proprietary sustainable themes framework. The framework was developed in conjunction with the Ninety One ESG team and ensures a consistency of approach when it comes to identifying, analysing, monitoring and reporting on companies and their impact on society and/or the environment. The team’s impact assessments are one of the most compelling attributes of the investment process. This demonstrates their commitment to transparency with investors when it comes to evidencing and reporting the fund’s actual impact, both positive and negative. Although the vast majority of companies in the fund have to be aligned to one or more of 10 sustainable investment themes, Evans is clear that each of them are at different stages of their sustainability journey. The fund’s manager is supported by the Ninety One quality team, and in particular the analysts who are principally responsible for the extensive and detailed company research undertaken – yet another reason why we believe this fund to be a compelling choice for those investors seeking a responsibly focused UK All Companies fund.
John Monaghan Research director, Square Mile
‘A “dark green” approach sets this fund apart from many of its ethical peers’
‘There is firm-wide belief that long-term returns are more likely to be achieved by investing responsibly’
‘We believe the team’s impact assessments to be one of the most compelling attributes of the investment process’
Board participation is becoming a dominant metric for assessing gender equality, but although certainly significant, attracting and retaining diverse talent in a company’s overall workforce is equally important. It’s therefore crucial for asset managers to dedicate time to analysing and measuring diversity splits across organisations. It’s well known that diversity and equality enhance corporate performance in many ways: recruiting and retaining the best talent, having stronger customer orientation, enhancing corporate reputation and improving decision-making and innovation outcomes. Gender and social equality create positive impact in terms of financial and social returns that in turn help shape a company’s intrinsic value. Reporting retention One of the things that is important to look at is retention rate. In 2020, our analysis found that portfolio companies tracked and disclosed retention rates at nearly twice the benchmark rate (67% versus 36%, respectively), leading to the conclusion that companies that do better at retaining women publicly disclose it. Moreover, further study shows that about 75% of companies report their women workforce percentages, which means management is already equipped with the raw data, they just need to exploit it by drilling down and measuring the proportion of women at various levels throughout the organisation. This kind of analysis is crucial to help management focus on prioritising efforts to retain women as well as advance them to senior roles. Engagement teams should use these findings to encourage companies to track and disclose their performance on retention rates. In addition, the pandemic has done little to change company reporting on retention rates, despite its disproportionately heavy toll on women and minorities. In 2021, it went up just two percentage points to 38% for MSCI World (or 581 out of 1,513 companies reporting). Further analysis will determine which sectors or countries perform well at reporting retention and whether best-in-class standards can be developed and applied across industries and economies. Information such as retention rate metrics are valuable for assessing the social dimensions of a company’s sustainability score, and thus important for helping investors make informed decisions. The power of diversity For asset managers to take advantage of, and effectively implement a stockpicking policy that takes into account key diversity, equity and inclusion (DEI) indicators, we recommend measuring performance across a number of specific gender investment criteria is important. This includes: gender pay across multiple levels of their organisations; health and wellbeing that include policies to foster employee health, flexible working hours, maternity/paternity policies and; strong employee engagement, for example, anti-harassment and discrimination goals, company codes of conduct and an effective incident escalation processes. For sectors such as pharmaceuticals, high performance in social equality may be intuitive; for others it is less obvious. Yet there are high-quality companies around the world and across industries that are also leading in DEI. We currently favour companies that report and maintain higher retention rates, many of which can be found among profitable US technology stocks. As far as the remainder of 2022 goes, the asset management community must continue to embrace DEI improvements in its engagement programme with investee companies. Those managers that fail to effectively seek out and engage on DEI issues at both potential and existing investee companies ultimately risk not just reputational issues, but will also fail to effectively seek out those companies set to benefit from the performance potential of a company with a well-established and integrated DEI focus. Progress is in the right direction but, as already mentioned, more disclosure and reporting is needed to help companies capture the power of diversity and maintain accountability to stakeholders.
Audrey Kaplan Senior portfolio manager, global equity team, Robeco
‘Retention rate metrics are valuable for assessing the social dimensions of a company’s sustainability score, and help investors make informed decisions’
Once again, ESG Clarity and Bonhill Intelligence have run the numbers for our Responsible Ratings Index (RRI) to bring you the latest ranking of sustainable funds. Topping the table this month is the Morgan Stanley Global Brands Fund, and with this magazine being a diversity, equity and inclusion (DEI) special, ESG Clarity asked the team at Morgan Stanley how DEI considerations figure in their stockpicking process. MS INVF Global Brands is 75% invested in large US companies, and its biggest holding, at just over 9% of the fund, is in Microsoft. In the US, the team can use Employer Information Reports (EEO-1) to glean diversity information, but head of sustainable outcomes for international equity Marte Borhaug notes only a handful of companies publicly disclose this, and outside the US much of this information, as well as gender pay-gap reports, may not be available. Engagement and disclosure The team therefore benefits from engagement efforts, and in 2021 the firm conducted 143 engagement meetings on ESG issues, with 45 discussions focused on diverse and inclusive business, workforce wellbeing and pay equity. For example, Borhaug says the firm has been pressing the boards of two global consumer staples companies for some time to diversify away from being all-European and towards greater representation of their underlying markets, and are now starting to see new appointments. “On data, we engaged with one of our medical technology holdings to discuss a shareholder proposal – which we supported – calling for a report on racial justice and disclosure of EEO-1 gender and ethnic diversity data,” she says. “We questioned, given they report EEO-1 data to the US government, why they didn’t disclose it publicly. We are pleased that they now plan to disclose some EEO-1 data as part of their new DEI report.” Borhaug says the firm’s DEI engagement checklist includes questions on alignment of DEI with executive compensation, pay equity and pay-gap analysis, gender-neutral hiring processes and requirement for a gender diverse slate of candidates for all leadership positions, training programmes, flexible work programmes for both parents and employee engagement surveys. Click for fund details and performance graph
Allianz Continental European
MS INVF Global Brands
‘Morgan Stanley’s engagement checklist includes questions on pay equity, pay-gap analysis and gender-neutral hiring processes’
Click here for the full Responsible Ratings Index
RRI ratings providers and methodologies
• Responsible Ratings Index (RRI) combines the scores of ESG ratings agencies. ESG Clarity’s bespoke index provides a comprehensive analysis of the top ESG funds available to investors. • Square Mile’s Responsible ratings combine a fund’s positive impact on the investor’s financial wellbeing alongside the positive impact it has on the world around them. Three factors are considered before being awarded a rating: exclusion – excluding those that have a negative impact on society or the environment; sustainability – rewarding and encouraging positive change and leaders in sustainability; and impact: those that have positive impact on society or the environment. • Morningstar Sustainability rating provides an objective evaluation of how funds are meeting ESG challenges. Each fund is ranked within their peer group. MSCI ESG Fund ratings measure the resilience of funds to long-term risks and opportunities from ESG issues. • Lipper/Refinitiv ESG scores are designed to objectively measure ESG performance, commitment and effectiveness based on publicly reported data across the three pillars – environmental, social and governance. • Overall Morningstar ratings award funds one to five stars based on past performance. These rankings are based on the performance over the past three years, with risk and costs also taken into consideration, and judged against funds in the same category. • FE Crown ratings are quantitative ratings of one to five crowns based on past performance, stockpicking, consistency and risk control. FE fundinfo provides these ratings to distinguish funds that are strongly outperforming their benchmark. Funds awarded five crowns are in the top 10%. • FE fundinfo Risk scores define ‘risk’ as a measure of volatility relative to the UK leading 100 shares, which have a risk rating of 100. More volatile funds have a score above 100, while those below 100 are more stable. This offers investors a reliable indication of relative risk. • Morningstar Analyst ratings provide forward-looking analysis of a fund based on five pillars: process, performance, people, parent and price. Top-scoring funds receive a ‘gold’ rating.
Click for the top 25 Responsible Ratings Index listings
MS INVF Global Brands Fund
Runners-up Taking the second and third spots in the RRI this month are the Fidelity Global Dividend and Nordea Global Climate and Environment funds, respectively. Both are also most heavily weighted to US companies, although the Fidelity fund’s top holding, at just over 4%, is in British business Unilever. The consumer goods company recently made headlines for including menstrual leave in its sick leave policy.
The death of George Floyd and the ongoing pandemic have highlighted social inequities that were previously ignored. Board and workforce composition and the inequitable impacts of business practices on diverse communities reflect and perpetuate underlying racial and ethnic injustices that create systemic risk. But addressing social injustice can help to create long-term value. Social injustice occurs when people do not have access to the same rights and opportunities afforded to others, due to race, ethnicity, gender, sexuality, religion, disabilities or other characteristics. Examples include inequitable access to employment, education, housing, health services and finance; negative stereotypes; and poor and marginalised communities’ greater exposure to pollution and climate change. These inequities contribute to widening income inequality and persistent, multi-generational gaps in family wealth, educational attainment and health indicators. Social injustice polarises society, frays democracy and hinders economic growth, as well as raising profound ethical questions. These forces create systemic risk that may impact the performance of the economy, the market as a whole and all asset classes. Inequalities created by social injustice pose a threat to long-term universal owner returns, similar to other long-term ESG issues such as climate change. Addressing the financial risks of social injustice is therefore in investors’ financial self-interest – in addition to being the right thing to do. But the risks are poorly understood. While initiatives to create greater visibility, such as the Task Force on Inequality-related Financial Disclosures and the World Economic Forum’s inclusive growth benchmarks are underway, they are still emerging. Taking a systemic stewardship approach to diversity, equity and inclusion (DEI) pushes boards and companies to create value by making three positive changes: • To build more inclusive boards, workforces and cultures that help dismantle obstacles and enable all individuals to maximise contributions to their companies. • To reduce harmful company practices that perpetuate injustice in society. • To develop proactive strategies and products that reduce inequities. From the head down All companies should look at how they can address inequities within their boards and workforces. DEI is an ethical and business imperative. Expanding and improving on DEI, both at the leadership level and throughout the wider organisation, creates enduring value by improving decision-making, attracting talent, enhancing workforce satisfaction, and stimulating insight and innovation. A growing body of evidence supports the system-wide benefits of social and economic inclusion, and the risks of continued exclusion, by linking more diverse company leadership with greater financial performance. Many companies continue to fall short in terms of reflecting the diversity of society on their boards, in senior management and throughout the workforce. Groups should strongly advocate for boards of diverse composition, in the broadest sense, and for the execution of meaningful workforce-level DEI strategies. Our expectations include meaningful CEO and board commitments and effective board oversight of a clear strategy accompanied by targets and disclosure of performance. Investors should expect companies to have moved beyond public statements to actively building inclusive cultures. This should include the recruitment and career progression of members of underrepresented groups, including at the board and senior levels; training all employees in dignity and respect, plus unconscious bias and allyship; and increasing employee engagement, retention and development. Rooting out injustice Fixing a company internally is a prerequisite for its ability to recognise and prevent harm to customers and stakeholders. Doing so requires understanding and addressing deeply rooted and complex problems that inevitably impact both a company’s workforce and the society within which it operates. Companies must gain a clearer picture of the potentially inequitable impacts of activities on external stakeholders, with effective oversight and performance evaluation. Proactive strategy It is important to strengthen the health of the stakeholder ecosystem to reduce systemic risk. Poor and marginalised populations have many unmet needs, creating opportunities for companies. We encourage companies to apply a DEI lens to innovate and create new products and services, including those that help to achieve the UN Sustainable Development Goals. These may open up new businesses, attract loyal customers, employees and business partners, and build brand value. Active investors can drive meaningful positive change that addresses injustice and creates financial value. More attention must be paid to the systemic risks of injustice and, conversely, the benefits of a more inclusive society. Boards must be held to account for the social impacts of practices that create risks for their own companies and the wider financial system, and should take ownership of company purposes that enhance the health of the stakeholder ecosystems that impact their own and investor returns.
‘As investors, we should expect companies to have moved beyond public statements to actively building inclusive cultures’
Emily DeMasi (left) and Diana Glassman Directors – engagement, EOS at Federated Hermes
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To help fund selectors pick the best funds in the environmental thematic investing arena, we bust the common myths that persist in the sector
Thematic investing has experienced a marked upturn in recent years, with a strong focus on sustainable investing. However, several myths perpetuate around this area that could inhibt fund selectors from making an effective judgement. We explore these myths with our Environmental Strategies Group to help fund selectors distinguish between those funds that say and those that actually do. Myth 1: what is the trade-off? The concept of taking high levels of risk for higher returns is often associated with thematic funds. To create alpha and mitigate risk, technological know-how and acumen are crucial. There is a wide array of opportunities among companies that address environmental challenges which provide the opportunity for both young disruptive companies that are already active in this space alongside more established ones. So, how should fund selectors navigate environmental opportunities? Companies operating in the sustainability arena are often very specialised and so technical expertise is key. Understanding and identifying which technologies are likely to survive, which will be the most disruptive, whether they will be scalable etc are some essential questions to consider. Myth 2: shorting stranded assets is unethical Climate change is not only an existential risk, but also one of the greatest commercial opportunities of our time.¹ From an investment perspective, the opportunity is not just about finding the winners. There will be fundamental losers in the energy transition as companies with strong environmental credentials are more likely to outperform those that have unsustainable business models and are vulnerable to transition risk. Obsolete assets can be capitalised upon by using alternative strategies. Shorting stocks should not be considered unethical even in the context of a sustainable fund. After all, by successfully shorting stranded assets a fund manager can recycle these profits into funding other businesses that are creating sustainable solutions. Myth 3: are ESG ratings enough? ESG ratings are embedded into our framework, however, third-party ESG ratings are not relied on explicitly to determine our view of sustainability and here’s why. Fundamentally, ESG has a different definition to sustainability. Sustainability takes a full company view of whether – on net – a company adds or detracts from our environment and sustainability. ESG takes a more compartmentalised approach, judged largely through company disclosure. This leads to some of the planets most unsustainable companies (coal or oil extraction) having better ESG scores than their clean energy counterparts. Fund selectors should look for active funds and source opportunities across the capitalisation spectrum. Myth 4: not diverse enough? Environmental thematic investing is not just about clean energy. The diversity of businesses focused on the provision of environmental solutions is huge. Opportunities in the energy transition alone cover a range of sectors, and that’s not including the companies focused on improving the planet’s biodiversity, revolutionising food production, conserving water usage and developing solutions to limit our use of plastics. Efforts to establish a more circular economy, that focuses on recycling, repair and regeneration, will also spawn investment opportunities as economies evolve in a fashion that strives to no longer overshoot our planet’s dwindling resources. In short, it’s actually a very broad thematic opportunity that will likely impact all industries, to varying degrees. Myth 5: you need an established fund track record Sustainable and environmentally-focused investing is still a young investment discipline while being a rapidly growing area with new funds being created all the time. As a starting point, a team’s track record can be a useful indicator, but past performance should not be considered an indicator of future returns. In fact, there are very few investment teams that have a long track record in understanding these industries. So what should fund selectors focus on? Firstly, it’s important that every company is fully aligned with the theme the fund is trying to pursue. Also, top-down considerations are just as critical as bottom-up ones such as macro and political. Finally, it’s important to focus on the ‘E’ in ESG. This is where the most investment, growth and tech-enabled innovation is taking place, and where the world faces its greatest challenges. Myth 6: a public investment vehicle can’t achieve impact There is a common belief that true investment impact can only be achieved through venture capital, private equity or via direct project finance. While powerful, these are also harder to scale, very niche and harder to access. This explains our all-cap approach and why we can achieve significant impact by investing and engaging with younger and promising companies in the environmental space, by providing them with capital and advice to further their presence in the markets that they operate. To truly succeed, environmental themes must be accessible to all investors – after all it’s investors and the wider society who are driving the growth of ESG and sustainable investment products. Are you ready to invest with a pure thematic approach? There is no denying the search for greener solutions to power and protect our planet will be a significant investment opportunity, but the speed with which these solutions are evolving creates a challenge for fund selectors. Finding effective, environmentally themed funds will take research and an open mind as well as the conviction to invest purely and, as a result, with an unconstrained approach. At BNP Paribas Asset Management, we have developed a range of thematic strategies that proactively invest in companies that champion greener policies, environmentally positive practices, as well as the energy transition. Source: Bloomberg, August 2021
‘A more circular economy that focuses on recycling, repair and regeneration will spawn investment opportunities’
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Helping investors navigate the ESG universe
ESGeverything.com is a one-stop-shop fintech platform to help investors make sense of this vast and complex world of ratings, standards and labelling
ESG investing has evolved from being a niche concept to becoming a vital cog in the economy. But in order to maintain consistency and conform to robust industry standards, a substantial amount of scrutiny and resource is required these days. The market has experienced such a fast-paced adoption of ESG and impact strategies, it is perhaps no surprise that investors are suffering on one side from ‘information overload’, and on the other from ‘ESG confusion’. This is not helped by the fact investors are often using several complex analytics tools to assess their investments ex ante for investment decisions and ex post for reporting and marketing communication. UK-based MainStreet Partners, a specialist in ESG advisory and portfolio analytics for sustainable, ESG and impact investments since 2008, has launched a one-stop-shop fintech platform to tackle this complexity for investors, helping them navigate the vast world of ESG ratings, standards and labelling. The fintech platform has been designed with the aim of helping wealth managers, asset managers and asset owners address two key needs: 1) To understand and manage the ESG risks in their entire diversified portfolios. 2) To avoid greenwashing. How does it work? Users gain access to a complete and constantly evolving database of ESG ratings, which have been created by the proprietary models of MainStreet Partners. These models have been used for several years by some of the largest and most sophisticated investors in Europe. ESGeverything ratings also cover a wide investment universe: • Over 4,200 funds and ETFs are rated following MainStreet Partners’ unique model, which analyses three separate pillars – the asset manager, the strategy and the portfolio. • Over 5,300 companies are rated across the three pillars (E/S/G) and 12 sub-pillars within those. • 89 countries are assessed from an E, S and G perspective. • Over 2,000 green, social and sustainability bonds are rated, taking into account their ‘use of proceeds’. • Bespoke exclusion lists are created based on controversial activities and behaviours. All ratings are based on the same scale from 1 to 5, with a rating of 3 and over representing an ‘ESG certified’ portfolio. In this way, multi-asset portfolios investing across different asset classes, holdings and products can easily be compared and investors can pinpoint where portfolios might need to be rebalanced to improve their rating. The comprehensive platform is user friendly, easy to navigate and provides users with filters to analyse the data in an easy-to-read fashion. Cracking the credentials Neill Blanks, funds research director at MainStreet Partners, says: “We are very clear on the importance of investors being able to analyse the ESG credentials of their investments holistically. Analysing an ESG fund solely by considering the portfolio holdings, without taking into account the investment strategy and who actually manages it, is misleading and ambiguous. “In addition to the portfolio, it is important to consider the asset manager, the investment team and the strategy separately, which results in a more reliable and complete sustainability rating. Investors and advisers need assistance in identifying truly sustainable investments across all asset classes, in order to help avoid the issue of ‘greenwashing’.” Rodolfo Fracassi, co-founder and managing director at MainStreet Partners, explains the origins of ESGeverything.com: “Since we founded MainStreet Partners in 2008, we’ve had a big dream in mind: to help investors achieve consistent financial returns while improving people’s lives and protecting our planet. Today we can share our proprietary ratings and tools with a much wider audience of investors, thanks to the technology of ESGeverything.com. “Our vision is to ensure investors of all sizes, whether small, mid-sized or large, can have access to professional ESG tools, can be fully compliant with industry regulations and can improve the sustainability profile of their portfolios.” About MainStreet Partners MainStreet Partners is based in London and regulated by the Financial Conduct Authority. It consists of two main divisions: • ESG Investment Advisory – offers bespoke investment solutions for creating ESG multi-asset and multi-manager portfolios with mutual funds, single stocks and bonds. The company develops products with its partners which target United Nations Sustainable Development Goals or thematic investments. • Portfolio Analytics – provides a holistic approach to ESG data analysis such as: transparent and detailed equities; bonds and funds ESG ratings; and assessment of clients’ portfolios to enhance their ESG profile and align them with the ‘green’ regulations.
‘We’ve had a big dream: to help investors achieve consistent financial returns while improving people’s lives and protecting our planet’
Rodolfo Fracassi, co-founder and managing director, MainStreet Partners
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When my colleague Christine pitched the idea of a feature on mental health issues within the ESG industry, the topic couldn't have been more raw for me. I am going to be vulnerable here and share my experience, but most importantly the reaction and help I have received since. At the start of the year, I was extremely excited to plan a trip to New York with deputy editor Natasha Turner to meet our US colleagues and investment industry representatives to share our plans for ESG Clarity across the Atlantic. In the lead-up, I was very tearful at the thought of leaving my family after working from home for the best part of two years and not travelling abroad for well over four years. I was less worried about Covid, but feeling very anxious about being so far away from loved ones. It is also important to note, as it has been for everyone during the pandemic, the past year had been a tough one personally with several bereavements, a very stressful house move and family health concerns. At work, the increasing demand for ESG content from inside and outside the business meant I was extremely busy and juggling too much. However, I was reassured by family and friends once I got to the city I would be settled within a few days and a week would go by quickly. I was determined to do this, and so thankful for the opportunity to travel and build on the success of ESG Clarity in the US, Europe and Asia so far. Growing dread We arrived Friday late afternoon, our theory being to get over the jetlag before ploughing into work on Monday morning. I shopped, Natasha took in some museums. We had a lovely rooftop dinner taking in views of the Empire State Building. However, the whole time I was pushing down the anxiety and dread I felt inside. It wasn’t settling but getting worse, no matter how much I tried to pound it out in the gym, meditate and indulge in retail therapy. The Covid situation in the States was quite different to the UK at the time – the UK had just ditched mask wearing in public, while in the US you would be fined for not wearing one, you needed to show your Covid passport to access almost everywhere and commerials encouraging Americans to have the jab were on billboards, TV and even on tiny screens in the famous yellow taxis. It felt like everywhere you were reminded of the dangers of Covid, which made me even more anxious at the thought of catching the virus and delaying my trip home. These anxious feelings soon manifested into panic attacks and lots of hot tears. I was very much not coping. After numerous meetings with investment managers across a few days, I was really struggling despite doing everything I could to try and make myself feel better, including reaching out to mental health first aiders at Bonhill. After the anxiety, panic attacks and low feelings became too much to bear, I realised I needed to go home. Natasha and my senior management team were fantastic, and I did feel really supported in my decision to come home, despite part of me feeling like a let-down to colleagues and contacts I could no longer meet. Work in progress However, I do believe in fate and that everything happens for a reason. Having this breakdown and speaking about it with my colleagues has changed me in so many positive ways. I know I need to look after myself more, trust my instinct and work on the impact the pandemic has had on my mental health. It’s a work in progress. My CEO asked me to share our findings in the US with my colleagues in our weekly company email – I updated them but also gave an honest account of what happened as above. The response I received from colleagues was outstanding. Not only were the messages of support, but they said I gave them strength to speak more openly at work about their own mental health challenges. There really needs to be more discussions like this. As Christine’s feature highlights, there are some great initiatives to support employee mental health within the investment industry, including at Bonhill, and that’s how it should be. With the mammoth tasks we have ahead of us in terms of educating, supporting and moving forward in mitigating climate change and ensuring there is a just transition, we will need all the mental strength and support we can get.
‘I was pushing down the anxiety’
