ESG – Feature
Christmas came a day early in 2020. On December 24, the UK and the European Union (EU) unexpectedly agreed a trade deal with only days of the transition period remaining. In the first full day of trading that followed, the FTSE100 closed at a 10-month high. Days later, there was more good news. With the new year almost upon us, the UK approved a second vaccine for Cov- id-19, the virus that killed almost 2 million people globally and decimated economies in 2020. The pandemic and uncertainty surrounding the terms of the UK’s departure from the EU dominated the headlines in 2020. A bitterly fought US election and equality protests around the world helped to make it an unforgettable year. While trade agreements, vaccines and a new US president will not guarantee social and economic improvements in 2021, they provide optimism that some form of normalcy will return. If this is the case, how should investors manage their sustain- able portfolios?
“2021 is coming off a tricky year,” says Peter Mennie, head of ESG integration and research at Manulife Investment Manage- ment. “Once the vaccines are rolled out and Covid is receding, a key issue will be to make sure that the programmes coming out of the EU and the UK are focused on a green recovery, a green approach to generating jobs.”
This year could also see a more fundamental approach towards the key issues embodied by ESG. Less of a focus on integration and more substantial thinking about sustainability: the energy transition, environmental sustainability and equality, says Jane Ambachtsheer, global head of sustainability at BNP Paribas Asset Management. “We have passed the point of normalcy for people to integrate ESG. Everybody is doing it to some extent. It is less sexy now,” she adds. “A key trend will be asset owners digging deeper into the fundamental issues.”
Making an impact With bushfires, social justice protests and a global pandemic, demand for investments that solve environmental and social problems increased in 2020. “This trend is going to continue,” says Geri McMahon, principal, responsible investment at Aon. Her colleague and head of UK responsible investment Tim Manuel added that this approach is about making a difference. “Whereas a lot of the focus in 2020 was on understanding how ESG risks are managed, 2021 is the year of impact. “It is not about protecting yourself from the world around you, but how the investments that you make are positively contrib- uting to the challenges that the world around you is facing,” he says. Manuel is not the only one who believes that this approach is maturing.
38 | portfolio institutional December–January 2021 | issue 99
2021 is the year of impact.
Tim Manuel, Aon
“The definition of impact investing is changing,” says Caroline Ramscar, head of sustainability solutions at Legal & General Investment Management (LGIM). “In the traditional sense, it means measurable, quantifiable action alongside a financial return.
“Investors are now looking at how their traditional invest- ments can make an impact and they want greater transparency on their holdings and to make more of a difference through voting and engagement,” she adds.
The social club
The social elements of investing fell under the spotlight in 2020 like never before, fueled, in part, by the pandemic. George Floyd was another factor. The protests that followed his death in police custody are changing the way many investors are seeing social issues. “How businesses deal with stakeholders from a social point of view, such as employee rights, is becoming more material,” says Chris Varco, Cambridge Associates’ managing director of sustainable and impact investing.
Another development in the changing attitudes towards the social aspects of ESG is that regional leadership is changing. “Europe is generally ahead of the US on ESG, but the move- ment around social justice and diversity is gathering pace in the States and I expect that to continue in 2021,” Varco says. Masja Zandbergen-Albers, head of sustainability integration at Robeco, says that the events of 2020 have accelerated conversa- tions around diversity, pay inequality and labour standards.
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