ALPIMA Year Ahead Summit Takeaway no. 2 – ESG / SRI

Published in Insights on 10th December 2020

The second article in our series is about ESG and SRI, which were discussed in detail during the recent ALPIMA Year Ahead Event.

     - Game Changer - The panel agreed that ESG and SRI are clearly becoming core. Ignore this trend at your peril. Bluebay’s David Riley described ESG / SRI as “a huge theme, the biggest change experienced within asset management” in his career.  

     - Affecting everyone - From individuals to corporates to governments, from millennials to seasoned institutional investors, and happening around the world.

  • $140 bn of Green Bonds are expected to be issued by companies alone during 2020.
  • UK and EU governments expected to issue hundreds of billions of social and green bonds.
  • Fidelity’s Andrew McCaffery said that almost all client meetings now involve a conversation about ESG.
  • A growing number of investors are demanding that managers demonstrate the systematic integration of ESG considerations into the investment process.

Such a huge topic will of course bring its share of challenges as supply increases dramatically and multiple data sources need to be channelled.

     - Climate risk & carbon pricing are taken seriously – but the clock is ticking. Bob Litterman highlighted their profound impact on investment management. He said that “many lessons from the COVID pandemic apply also to risk management as both COVID and climate change are global risk management crises, both illustrating and emphasising that the wellbeing of the planet depends on all of us”.  This understanding is helping to drive market acceptance of ESG/SRI. Bob added that “time is not on our side, we have to move quickly. From a global perspective we haven’t created the appropriate strong incentives to reduce emissions. I think, and hope, that’s coming”.

     - More disclosure – Standard financial metrics will soon include ESG metrics. David Riley said, “Investors want to have a look to see the portfolio, they’re used to seeing some of the standard financial metrics.  They want to see the ESG profile within that as well”. While guidelines are currently voluntary, there needs to be a collective effort by the industry and regulators for them to become mandatory.

     - Not just a European thing - To date, ESG has been driven by Europe, but this is changing rapidly with US investors increasingly looking to include ESG considerations in their investment process, and China taking the subject seriously.

     - Doing good AND doing well – As more data comes in, expect to see more proof that green investing can improve returns, not just manage risk.

     - This is only the start - Interest in environmental issues and ESG investing will increase in 2021 and beyond, as CIOs, PMs, and quants are able to utilise more processing power and analyse ever-expanding big data sets, and the passage of time provides more evidence on the case for ESG investing. 

     - Boosted by technology - The panel left us in no doubt that ESG is here to stay. Advances in technology will help to make ESG a core investment criterion and enable investment firms to build more and more ESG-friendly products.

The ALPIMA platform helps financial firms to build, test and implement investment strategies and portfolios that seamlessly incorporate ESG considerations into the investment process, from strategy design to portfolio construction, all the way to disclosure and client profiling, with the added advantage that such strategies can be customised to meet very specific customer preferences.

If you would like more information on any of these points please email us at info@alpima.com

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