With global climate change on the verge of reaching the point of no return, the Covid-19 pandemic highlighting the impact that the manufacturing and capitalist machine has on the planet, the collective desire for change in Environmental, Social and Governance (ESG) issues has never been more prevalent in the public eye.
And with investors from millennials to baby boomers all moving towards change, financial advisers and brokers around the world are finding the call for responsible investing louder than ever before.
The time is now
International Investment’s Gary Robinson introduces this Guide to Responsible Investing which is sponsored by RL360.
As with any investment world trend, the choice of investment solutions is vast and the need for a helping hand to select the right fund for the right investment profile has grown.
IN THIS GUIDE
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Gary Robinson
Commercial Director, International Investment
INTRODUCTION
In this guide Chris Corkish, Investment Marketing Manager, RL360 explains how the time is right for the international financial services industry to embrace ESG and provides an introduction the company’s new Responsible Investing sector as part of its defined fund ranges.
Chris also separately discusses the rise of ‘greenwashing’ and how some
so-called ‘green’ funds are perhaps not all that they seem.
We also speak to four key players in the international financial services industry and gauge their views on the rise of ESG and how this is impacting on their business.
Finally, please take the time to watch the video on the next page and take part in our short survey below. We value your views and thank you for reading/ viewing this guide.
NEW SECTOR
RL360 and ESG – doing our part so you can do yours
VIDEO
A guide to ESG investing
Avoiding Greenwashing
Keeping up with the ESG demand
INSIGHT
THE ADVISER'S VIEW
Click here to take part in our short survey
RL360 is introducing a series of measures designed to provide greater choice for those looking to invest responsibly, and also make it easier it for investors to assess how ESG friendly the funds we make available through our guided architecture fund ranges really are.
This puts the power into the hands of advisers and plan owners to determine how they shape their portfolio to match their conscience.
The new Responsible Investing sector in our defined fund ranges has been constructed following exhaustive research into the market, trends and key initiatives driving the growth of this area. Importantly, we sought independent evidence of the ESG credentials of both the asset managers and their offerings as part of our review process, ensuring that the thematic funds we feature provide credibility and real positive impact.
NEW SECTOR
RL360 and ESG – doing our part so you can do yours
Environmental, Social and Governance (known as ESG) factors are increasingly important to our clients when they are considering how and where they want to invest their money.
More and more investors, especially younger investors, want to ensure they are only investing in funds which have a high ESG rating. With more and more ESG investment opportunities now available, socially responsible investors have greater choice than ever when selecting investments that reflect their own view of the world.
15
The number of funds available in RL360's new Responsible Investing sector
We believe that investing responsibly does not mean sacrificing strong investment returns, increasingly the opposite is true.
climate change
resources and energy
sustainability
human development
water and waste
multi-thematic
There are 15 funds in the new sector in total; this represents our strong conviction that investors will seek in future to ensure that all, or part, of their investment portfolio is working towards positive societal change in an area that is close to their heart. Each of the funds has also been analysed and reviewed in depth, using our quantitative and qualitative review process, to ensure that they are appropriate and of the necessary quality.
Finally, the new sector will be regularly reviewed so that it best reflects the principles of responsible investing and offers credible choice. We will continue to work with asset managers to identify and review new offerings as the responsible investing space grows.
The integration of the Morningstar Sustainability Rating into the product specific fund centres on our websites complements the new sector by enabling advisers and plan owners to understand how the other funds in our range are rated by reference to the companies they invest in.
We have built the sector across six broad themes:
We have just experienced a disruptive period of large scale changes in the way that we work and live, which have cast stark relief on ESG issues, particularly social factors and the effect of humanity on the planet. It is not difficult to imagine how an understanding of ESG factors adds to minimising risks in this context, and in the potentially violent upheavals the world could experience as we seek to combat climate change and develop in a sustainable manner.
We believe that investing responsibly does not mean sacrificing strong investment returns, increasingly the opposite is true. Companies that ignore ESG face higher risk and a more uncertain future. Investing responsibly can now be done with the heart and the head and here at RL360 we are doing our part to enable you to do yours.
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Chris Corkish
RL360 Investment Marketing Manager
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Chris Corkish
RL360 Investment Marketing Manager
climate change
resources and energy
sustainability
human development
water and waste
multi-thematic
We have built the sector across six broad themes:
One aspect of ESG integration that is at the core of many of these accusations is what is termed ‘active ownership’; that is, using shareholder rights to influence company behaviour and enforce positive change. Asset managers are often in a position where they hold large consolidated positions in companies and can use their financial muscle to promote positive behaviours.
The problem is that some managers have shown poor proxy voting records over some ESG related issues. This is difficult to justify, both from the perspective of their promotion of ESG integration to their processes but also as getting ESG issues right has been established as being crucial for long term sustainable growth.
The inexorable growth of ESG is reflective not just of the development of the social conscience but also as a pragmatic risk mitigation tool. The perception of responsible investing as something ‘fluffy’ and insubstantial has largely disappeared and been replaced with an awareness that inevitable changes in the way the world is governed and regulated will mean poor behaviours are sanctioned financially and potentially criminally. The perception of the need to sacrifice returns to invest responsibly is also disappearing; recent studies have shown that ESG integration can provide resilience and outperformance.
INSIGHT
Avoiding
Greenwashing
The term ‘greenwashing’ has been used to describe the behaviours of some asset managers whose ESG credentials are not as strong as they profess.
We have just experienced a disruptive period of large scale changes in the way that we work and live, which have cast stark relief on ESG issues, particularly social factors and the effect of humanity on the planet. It is not difficult to imagine how an understanding of ESG factors adds to minimising risks in this context, and in the potentially violent upheavals the world could experience as we seek to combat climate change and develop in a sustainable manner.
We believe that investing responsibly does not mean sacrificing strong investment returns, increasingly the opposite is true. Companies that ignore ESG face higher risk and a more uncertain future. Investing responsibly can now be done with the heart and the head and here at RL360 we are doing our part to enable you to do yours.
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We believe that investing responsibly does not mean sacrificing strong investment returns, increasingly the opposite is true.
The assessment of ESG factors has generated a great deal of noise in the investment world, especially over the last five years.
It is an emotive topic of debate in asset manager circles as the rush to integrate screening and analysis into traditional stock selection methods has led some to question whether some managers are simply paying ESG lip service.
RL360 is integrating the Morningstar Sustainability Rating into the fund centres available to products with defined fund ranges on our websites; this rating is based on analysis provided by Sustainalytics, a leading provider of ESG research, and enable advisers and plan owners to understand how funds available to their product, or in their portfolio, are rated for ESG by reference to the companies they invest in.
We are also adding a number of responsible investing funds to the defined fund ranges available to our savings, investment and protection products, from asset managers with proven credentials in ESG.
ESG may be generating a lot of noise in the industry but we believe the benefits are tangible and therefore it will be a feature of asset selection into the future. We also believe that investing responsibly can now be done with the head as well as the heart.
Article by Chris Corkish, RL360 Investment Marketing Manager
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With ESG becoming more and more of a priority to investors across the globe, how are the advisers and brokers coping with this increase in demand? International Investment’s Gary Robinson spoke to four of the biggest names in the industry to find out more…
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Eight out of ten millennials put ESG credentials at the heart of their investment decision-making process
“The view that ESG investments are ‘nice to have’ but not ‘a need to have,’ has fallen apart under scrutiny in the virus-driven global economic downturn”
Click on images for each adviser's view
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THE ADVISER'S VIEW
Keeping up with the ESG demand
DeVere Group, which operates in more than 100 countries globally, recently reported that 56% of clients who seek to include environmental, social and governance-orientated investments into their portfolios do so citing that such sustainable funds offer financial protection in times of uncertainty.
With a safe-haven asset classed as a financial instrument that is expected to retain, or even gain value during periods of economic downturn, this can be seen a huge thumb’s up for ESG from global investment clients.
“There’s been a massive surge from clients this year looking for ESG investments,” says Green. “Indeed, more than a quarter of all clients are currently considering or are already actively engaged in responsible, impactful and sustainable investing.
“It’s a phenomenon that’s particularly prevalent with millennials, with eight out of 10 putting ESG credentials at the heart of their investment decision-making process.”
According to DeVere’s founder and CEO Nigel Green, 56% of investors that have conducted business with the firm say sustainable investments (ESG) are a new “safe-haven”.
Green admits that he has been particularly interested in the reasons why global investors are seeking ESG in the first place. Not only Covid-19 awareness, but the new belief in ESG as a “safe haven” has been a surprise.
“Of course, the global public health crisis has acted as a wake-up call in many respects,” he says. “It has prompted a growing collective awareness of mutual responsibility that fits perfectly into the narrative of ESG investing.
“But what’s most surprising is that the majority [56%] also now say that they perceive ESG investments as the new safe-haven asset class. As such, they are increasing their exposure to such funds in a way that traditionally they would have done with, say, gold or U.S. government bonds.”
Green agrees with this view, as he says, all the latest research underscores that the majority of environmental, social and governance investments have outperformed their non-sustainable counterparts this year and have had lower volatility.
“This cannot be ignored by retail – and increasingly institutional – investors who are looking for resilience in these highly unusual times of this new era,” Green says.
Previously, the DeVere CEO has commented that the trend for ESG is only likely to intensify as millennials, who are statistically more likely to seek responsible investment options, become the major beneficiaries of the largest intergenerational transfer of wealth – an estimated $30tn in the next few years – meaning we can expect both retail and institutional investors to continue to pile into ESG.
“The data shows that the view held by traditionalists who claim ESG investments are ‘nice to have’ but not ‘a need to have,’ falls apart under scrutiny in the virus-driven global economic downturn,” Green concluded.
“And whilst this short time frame is not determinative, those investors citing ESG’s safe-haven credentials are, for now at least, being proven right.”
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“ESG investing and Islamic finance in the Middle East are complementary as both promote environmental and social responsibility.
“In the last ten years, the US, the UK and various other countries worldwide have enacted over 500 measures to promote ESG issues. We believe that the financial industry recognises the great potential for alpha generation through ESG factors.”
On the types of investors that are favouring ESG, there is a real rise in millennials and women.
Parker believes that ESG investing will only become more popular I think it will become more even popular but more as general movement as opposed to having to find a specialist ESG investment manager pointing to Blackrock and its recent stance on climate change.
“I suspect the industry will just naturally avoid morally questionable investments,” he says.
On the types of investors that are favouring ESG, there is a real rise in millennials and women. And regarding regional differences, Holborn has found that there has been a particular growth spurt in the US and UK, rather than in the Middle East.
“Obviously in the Middle East Shariah funds are [already] more socially responsible and won't invest in ‘ haram’ products,” he added.
500
The amount of measures enacted by various countries to promote ESG issues in the last ten years
“We certainly have seen an uptick in Environmental, Social, and Governance (ESG) and Corporate Social Responsibility (CSR) investing. “[But] these are not just buzzwords for our clients and our company.
“Regarding ESG, investors are increasingly applying these non-financial factors as part of the process to identify growth opportunities and material risks. We believe that the traditional risk-return equation will be rewritten to include ESG factors.
Parker points that many of Holborn Assets clients now look to incorporate ESG factors into the investment process alongside traditional financial analysis.
“Our clients tend to ask us to screen out activities such as weapons, tobacco, poor labour practices etc,” he says. “At Holborn Assets we have seen an uptick in ESG investing in the first half of the year. The coronavirus pandemic and the Black Lives Matter (BLM) movement in the US seem to have a significant impact on everyday life, raising social awareness. “
Simon Parker, is commercial director at global IFA giant Holborn Assets. The company has offices and advisers around the world, with large numbers in the Middle East and Asia.
Parra says that he hasn’t necessarily seen growth in ESG higher in certain regions, but more-so or in certain groups of people (ie millennials).
“As previously mentioned, this trend will accelerate its growth curve in the face of the pandemic and we do not consider that it should be assigned to a certain region or market segment,” he says.
“It is true that in developed markets this is not new but now it is a global trend and Investors are now much more aware of the impact and potential of ESG investments.”
“Investors are now much more aware of the impact and potential of ESG investments.”
We asked Parra what kind of increase in ESG interest have you seen in recent times? And why do you think it is happening?
“It is a trend that is beginning to gain strength in investors in the region,” says Parra. “For example, we are still far from Europe, where we see flows growing at a high speed, but ESG is definitely "the next big thing" that is on the mind of investors and which is being actively promoted by investment funds.
Has there been any big uptick after Covid-19 in ESG interest?
“Yes,” he says. “Social responsibility and the impact that companies produce are on the investors mindset as a great bet for the future and as a must within the portfolio diversification strategy.
“With respect to Covid-19, it [has] definitely accelerated a trend that was already growing and investments of this type demonstrated significant resilience in the face of the market situation during the past few months.
Robert Parra is president and CEO of Suprabrokers - a financial advice/broker organisation that operates across a range of countries in Latin America and the US. Based between his headquarters in Buenos Aires and Miami, Parra and his teams have clients from all across this vast region.
“The long-term trend is clearly upwards with regards to the adoption of this investing style. Covid-19 did accelerate the process, [but also] with ESG strategies delivering better returns this year thanks to a lower exposure to the energy sector, especially oil and gas.
Sierra concludes that in Latin America there has been an increase in interest in ESG, but it is not as strong as the spike that has been reported in Europe.
“This is not a surprise as there is often a lag between trends in the larger markets overseas and those in Latam,” she says.
“This has occurred primarily, but certainly not only, in the younger investors who tend to seek change in how things are done, which will increase the importance of ESG investing as they accumulate wealth over the years.”
“ESG strategies are delivering better returns this year thanks to a lower exposure to the energy sector, especially oil and gas.”
“There has certainly been an increase in questions by clients about ESG, looking at changing their investment profiles to include more ESG,” she says.
“We have definitely noticed an increased awareness in some of our clients that the way they invest does contribute to how the world shapes up. As ESG investing receives more attention, investors have started to hear more about it, raising the subject before it is mentioned by advisors, showing a proactivity not previously experienced with ESG.
As with the other advisory firms across the globe, Covid-19 has, Sierra points, “given a nudge” to the trend towards ESG as more people seem to be reflecting
on the environment and what actions they can take personally.
Aiva is another key player in Latin America. Carla Sierra (Head of Investments) at the company explains the increase in ESG interest and why she feels it is happening now.
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