SEC Newgate webinar: Is the asset management industry a leader or a laggard in ESG revolution?

By Shelly Durrant

Our Wealth and Asset Management team hosted a webinar discussion this week asking whether the asset management industry is being ‘a leader or laggard in the ESG revolution?’

One of the many interesting points of the discussion asked whether ‘we are currently in a period of merely labelling rather than enabling?’ Has the demand for ESG undermined what ESG investing set out to achieve in the first place? Have we forgotten what ESG investing is actually meant to be achieving? Yes, investors want to see a return for their money and yes, they want to be seen to be doing the right thing but have they actually taken a look under the bonnet of the companies they are investing in and checked whether they are actually doing good for our planet or have they merely passed a tick box exercise that doesn’t actually do what ESG originally set out to achieve?

The demand for ESG products has been based on an assumption that these products are going to make a better world. Companies looking at their carbon footprint, trying to reduce emissions, use less plastics, etc. all sounds great on paper but is it enough?  We need to ask investors some important questions:

1. What ESG credentials are you looking for in the company(s) you invest in?
2. What do you hope they will contribute to the environment?
3. Do you want your money to make a difference and contribute to solutions?

These questions that are not yet being asked by financial advisors, asset managers or the regulator.

We’ve become so focused on labels that it’s no longer clear what problem we’re trying to solve, what’s the end goal? And given that we’re in 2021 and David Attenborough has been banging this drum for years, these are not just questions that should be applied to purely ESG funds, we need to make it a hygiene factor across the whole financial system; with trillions of funds under management, the impact could be huge.

There are still so many ambiguities in the ESG space that need addressing.  Different rules, guidelines, roadmaps, measurement, reporting tools – maybe we need more standardization and agreed ways of ensuring we have clear guidelines in place for measuring ESG factors and criteria across the board.

While we don’t want to add more layers of admin and regulation, you could argue that another level of granularity is required where reporting is concerned. To get to where we need to be in terms of measurement and reporting, the industry will need more budget and resources to ensure we have the relevant technology in place to provide the reports that are required.

There was a consensus from our expert panel that the asset management industry has taken some significant steps towards sustainable and ESG investing, but the points above show we remain some distance from the ideal.  

Importantly, the onus shouldn’t just be on asset managers, it is also up to the end investor to get under the bonnet of these companies. Of course, there’s disclosures, ratings, and an abundance of reports out there for investors but ESG investing is still very subjective and personal.

Whether you’re a fund manager, financial adviser, regulator, or an individual investor, we need to ask ourselves, what are we trying to achieve and is it actually doing what we hope.

Watch the full webinar here