There are several ways in which banks, asset managers, and individual investors can be catalysts for change in the businesses they invest in. Here are three things that they can do to be advocates for positive change:
MSCI has published a new report, “2018 ESG Trends to Watch,” which explores five major ESG trends that will affect the financial markets throughout this year. A myriad of challenges, including policy, technological and climatic changes, currently face companies, asset managers and investors alike. According to the report, 2018 will see the following trends:
1. SIFTING FOR MANAGEMENT QUALITY IN EMERGING MARKETS
Picking good companies in which to invest can be a challenge in and of itself. But, when you add into the mix companies that are located in complex and opaque markets, the challenge to global investors is doubled. In 2018, it is expected that investors will increasingly use ESG signals to sift for quality in management and identify companies that are able to rise above their country's challenges.
2 FIRST STEPS IN SCENARIO TESTING CLIMATE CHANGE
Each investor would do well to ask themselves the question "How resilient is your portfolio to different climate scenarios?" Investors in 2018 are expected to expand their view of portfolio climate risk from company carbon footprint to macro exposures across asset classes.
3. ACCELERATION OF ESG INTO FIXED INCOME INVESTING
The ESG fixed interest space is still very much under-developed and as investors seek to balance their exposure to risk, the report anticipates that investors will aim to align their ESG frameworks across all asset classes and, in particular, the more defensive asset classes of fixed interest. This demand will drive growth in the number of ESG Fixed interest products available.
4. LOOKING BEYOND SUSTAINABILITY DISCLOSURE
Companies have historically wanted to satisfy their investors' demands for transparency, but at the same time want to control their corporate narrative. Although voluntary disclosure provides valuable information to investors, the picture it presents of a company's ESG risks is limited. As a result, investors are going to seek a broad range of data services that can balance the corporate narrative and give a better understanding of the risk faced by portfolio companies of the ESG risk landscape.
5. THE YEAR OF THE HUMAN
As artificial intelligence takes over tasks traditionally performed by humans, work tasks are redefined to require a higher skill set. Therfore, investors are looking to invest in quality talent at an increasing pace. Workforce data is difficult to find, but evidence suggests companies that have strong human capital showed superior growth compared with peers within the same industry. Investors can make simple comparisons using very basic metrics to provide valuable insights into the value a company places on its human talent.
Victor Bivell magazine editor for 30 years & founder & publisher of Eco Investor
Push towards renewable energy is unstoppable, but understand the challenges
The global momentum behind renewables is unstoppable. Investors who want to look more deeply into how clean energy is growing, and growing its share of the global energy market, can find a wealth of information from some of the world’s leading sources.
For example, the International Renewable Energy Agency says that global renewable energy capacity more than doubled in the nine years from 2007 to 2016 and global renewable energy production rose 56 per cent in the eight years from 2007 to 2015. The biggest drivers of this growth are wind and solar.
For investors thinking of taking the next step and investing, it would be worthwhile to first make sure they have a sense of just how big and varied the sector is, how many ways there are to invest, which technologies and stocks offer what they are looking for, and at what point they may want to buy.
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UK-based Pengana WHEB Sustainable Impact Fund says ethical investments can keep pace with, and even exceed, market gains. WHEB Chief Investment Officer, George Latham speaks to Elysse.