Earlier this month, FactSet hosted an event featuring three experts in the field of ESG investing: David Silverman of Blue Harbour Group, Linda Galsim of Jennison Associates, and Shila Wattamwar of Sustainalytics. These professionals shared their views on the challenges of ESG portfolio investing with the assembled audience.
Below are some of the key takeaways from the event.
What are the Major Thematic Changes the Industry is Seeing?
- ESG investing now represents $12 trillion in assets under management and is growing 20% year-over-year in the U.S.
- In addition to interest surrounding environmental factors, interest in ESG investing is growing among investors who want to “do good.”
- While some investors are willing to sacrifice alpha and performance for the assurance that they are participating in something beneficial, there is tangible ROI for these investment styles.
- An increase in the available data for ESG is creating options for more thematic portfolios in the ESG area, giving investors a gradient of investment options from "partial" to "all in."
- For mid-cap companies, investors and public opinion have continued to push the agenda on ESG-related policies.
How are Business and Engagement Surrounding ESG Evolving?
- Panelists indicated there is room to enhance engagement, and the conversations between investor and asset managers will continue to increase on this topic as a result.
- Historically, it has been very difficult to access comprehensive ESG data from companies, but this is evolving.
- Analysts still need to speak directly to companies to collect qualitative data and attempt to benchmark the information.
- Challenges remain in getting organizations to disclose their efforts and getting their legal departments to agree to disclosure.
Where are We Going with ESG Regulations?
- While laws and regulations are driving change at many companies around the world, others are leading the way by instituting governance changes and new processes on their own. However, it takes time and effort to make changes.
- In the U.S., there are very few federal regulations surround ESG investing, so states are increasingly taking the lead.
- In many cases, even if there is no law (pushes for women on boards, for example), companies are cognizant of public opinion and increasingly willing to alter practices to align with that opinion (and with the regulatory requirements it could eventually drive).
What Does Success Look Like?
- As the quality of ESG data continues to improve, it is being leveraged across a wide range of investment applications, not just pure ESG investing.
- There is a methodology issue on what the delta is between two companies looks like from a qualitative perspective on ESG. Alpha is often still the best differentiator in those cases.
- Panelists also say that if companies are interested in embracing this new way of being that they need to look at their balance sheets, dismantle what is not working, and start putting new governance and processes in place to fix it.
For more on the evolution of ESG investment, including from Sustainalytics' Shila Wattamwar, check out the webcast below.
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