June 2020

Here are the top news, stories, observations and other interesting things that we hear about in the market, with relevance for selection teams and sustainable investing.

#1 Investor: How “sustainable” should you be?

We often get asked about ‘best practice’ when it comes to ESG/sustainability implementation among investors but as we see it, there is no standard answer to that question (and investors are not the same!). Ultimately, things will depend on the investor’s own, subjective conclusions and preferences and how far they want to go/not go.

Some investors have zero-tolerance policies for tobacco, weapons, oil etc. where others are more pragmatic. For example, if a company has 5% of revenues coming from defence-related activities, does it disqualify that company for being in an ESG portfolio? And speaking about “defence” then some managers – and countries – and investors – will see defence systems as, well… “defensive” and therefore they could still be part of an ESG portfolio (may not be weapons directly, but could be, e.g. aviation technology like radar technology, flight systems etc.). So again, who is right?

Ultimately, it relies on the investor and what their investment committee/board/management/stakeholders find acceptable and where they draw the line. Many investors and companies use UN Global Compact/SDGs as their guidance; others lean towards exclusion lists (negative screening) from, e.g. the big institutional investors such as the Norwegian Oil Fund, ABP etc. Among the leading investors (concerning ESG at least) we see an increasing preference for an actively managed (integrated) ESG portfolio as opposed to an “exclusion list” because it is sometimes easier to define what should be in the portfolio than trying to determine what shouldn’t. Starting with your own definition of “sustainable investing” is probably the best place to start!

A “selector’s view” on the topic can be found here

#2 Increased focus on impact investing among endowments

We see an increasing awareness of impact investing among endowments/foundations, especially the idea of further integrating their investment business with the philanthropic activities. Traditionally, the investment portfolio is separated from charitable activities, but this may not always be the case in the future. On this note, we recently launched a global impact mandate for the Danish philanthropic organisation Realdania which illustrates this point. The catalyst is likely to be the increased focus on sustainability in general, e.g. through stakeholders like UN/SDGs but also regulators and boards consider this a more and more critical part of their governance model. See also point #3 below for further details on this subject.

#3 Survey: Asset owners continue to flock to sustainable investments

The percentage of asset owners that have adopted sustainable investment practices rose to 80% in 2019 from 70% in 2017, results of a survey from Morgan Stanley Investment Management released Wednesday showed. Read the full story here

#4 ‘Greenwashing’ on the rise

With sustainable investment funds accounting for as much as 1 in 4 institutional dollars under management, it raises the question of how much is real progress vs mere marketing. Follow the link below to read some relevant comments from leading asset managers, investors and MSCI (Head of ESG). Read the full story here

Visit www.globalfundsearch.com/esg-leaders