difficult asset class in that when it comes to ESG quality you do not find the same reporting standards or environmental regulation that you might find in Europe. We discovered that over 10 years, the ESG approved investment universe based on constant and objective ESG criteria outperformed the index by 2.4% per year. We found that there was no specific bias except towards large cap, which normalises over time because less information came from smaller emerging market companies 10 years ago. Over time that has improved, so we are able to integrate that more with the data from large caps. You can generate financial alpha by integrating ESG into the heart of your investment decisions.


PI: Jonathan, would you pay a premium to get an asset that you consider to be ESG compliant? Levy: We do not think along those lines when making investment decisions. I manage our social investment portfolio and our num- ber one priority here is to ensure that the investment proposal aligns with the charitable objectives of the Joseph Rowntree Foundation, which ultimately is reducing poverty and disadvantage in the UK. In terms of returns, we want to recycle our capital, which is why we make social investments as opposed to awarding grants. We want to reinvest capital and continue making more and more social impacts further down the line. Making a return of up to 2% to cover costs is something that we aim for. The social objective is a priority for us.


The difficulty is how do we measure one manager’s performance against another because they all have different approaches. Bridget Uku, London Borough of Ealing


PI: ESG integration is typically associated with equities but is mov- ing into bonds, too. Are investors factoring it into private market investments? Brett: Private markets is an area where ESG can be well integrated. Assets such as property and infrastructure lend themselves well to integration on the environmental side and on the social side in terms of healthcare.


Infrastructure and real estate are where we see a higher propor- tion of highly-rated ESG strategies, which are, from our perspec- tive, the ones that are achieving what we would call an ESG one or two rating. Around 15% of our strategies achieve one of those rat- ings, but in most universes it’s harder.


This is somewhat a feedback loop as well in the sense that if you run a property strategy that is not paying attention to environmen- tal regulation then you are unlikely to be rated by us because it is fundamental to the success of that strategy.


In the private markets, we are seeing a lot of interest in impact investment strategies, in terms of job creation or healthcare provi- sion. It is easier to have those conversations with, and have influ- ence over, private companies in developing an impact strategy and making sure that attention does not drift.


One the other hand, there are a lot of private equity or private debt scenarios where it is difficult to integrate ESG.


12 May 2020 portfolio institutional roundtable: ESG


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24