It’s considered to be one of the most – if not “the” most – important part of asset management these days. ESG (environmental, social, governance) investing currently has about $40 trillion in assets under management, most of which are in Europe, but it’s also a trend that is gaining ground on this side of the world, both in Canada and the United States.
“It’s on the minds of not just asset management and wealth management participants, it’s across all industries and organizations and it certainly has made the policy agendas of international organizations and governments around the world,” said Frederick Pinto, senior vice president, Head of Asset Management at Aviso Wealth.
Disclosure and transparency
Asset managers and financial advisors have been looking closely at how to integrate ESG risk, how to advocate and vote on ESG issues and how to ensure companies have appropriate disclosure and transparency.
“We’ve all done our best to react to investor demand but now the role of regulators is to come back and create some structure and framework around how we’re going to promote these funds,” said Fate Saghir, head, Sustainable Investing at Mackenzie Investments.
Speaking during a breakout session at the Investment Funds Institute of Canada’s annual meeting, Saghir said Mackenzie is keen on integrating certain procedures to help move the economy forward but it’s up to different levels of government and regulators to come together on issues like disclosure and greenwashing.
The Securities and Exchange Commission (SEC) in the United States is also looking to apply more standards of disclosure, said Jon Hale, global head of Sustainability Research at Morningstar.
Hale said the U.S. industry is expecting to see a reversal of some of the former Trump administration’s attempts to keep ESG out of worker retirement plans. He also expects the SEC to apply more standards of disclosure and try to find an all-encompassing definition of what is actually meant by “sustainable investing.”
A combination of approaches
Right now, said Hale, ESG investing is not considered one single style of investing, but rather a combination of approaches.
“Strategies are going to be key in helping investors better understand sustainable investing funds and this would, in turn, narrow the expectations gap that I think a lot of investors may have of their funds,” said Hale.
Europe still leads the way in terms of sales of ESG products, said Sean Haggerty, managing director, Europe at Vanguard, but the continent still has a lot to learn about how it can formulate a plan for sustainable investing.
Haggerty noted that the United Kingdom is happy it can chart its own course since Brexit, but added the country is having challenges at G20 meetings trying to get everyone to agree on ESG standards.
Getting a gold standard on issues like definitions is going to be difficult, he said.
“I have been in this business for almost four decades.. [and]…I think this is as concerned as I’ve been about whether we are going to be able to navigate through this effectively and whether the end investor is going to be served well.”
The difficulty with getting all countries on the same page is that some regulators think of ESG as an either-or-situation.
“[Regulators around the world think that] either you’re sustainable or you’re trying to maximize returns. I think we’re very much fans of both.”
Step back and assess
Saghir also said the industry needs to take a step back and assess the responsibility of asset managers.
“Is our role really to push forward this stakeholder capitalism or is it purely based on generating profits? I do think we can do both if we are focusing on a multi-stakeholder model. But I think defining our role as an industry is really important.”