ESG Feature
He puts the “incredibly strong” demand for sustainable-la- belled products, such as green bonds and the other variants, down to the rising number of corporates and investors adopt- ing clear sustainable objectives. “Typically, there are higher levels of oversubscription for those types of bonds than for vanilla products,” he adds. “We expect that to continue and this will also support the secondary mar- kets, which means that the private sector can play its part.”
The other two
Climate has been embraced as core to institutional investment strategies in the past few years, but going forward there will be more interest in other ESG factors when pension schemes select funds, believes Caroline Ramscar, head of sustainability solutions at Legal & General Investment Management (LGIM). “From the flurry of funds being launched, ESG in general is being much more explicitly baked into funds,” she says. In 2022, this will include more of a focus on the S in ESG, which Ramscar believes has been encouraged by the Depart-
People are becoming more critical of ESG and that’s not a bad thing. Gabrielle Kinder, BNP Paribas Asset Management
ment for Work and Pensions [DWP] launching a consultation on the how schemes should consider social factors in their decision making. “People are starting to understand the S and the G a lot more,” Ramscar says. “What people forget, is that the G is one of the most critical components in ESG. We have gone heavy on cli- mate because we know there is a problem and if we do not realign our financing to help solve it, we are going to have much bigger problems.
“If you do not focus on the G you will not have a company to invest in,” she adds. “With the DWP focusing on that, people will be thinking more heavily around this in the coming year.” There is a greater interest in how staff are being treated as well as those working in the supply chain. “This was happening anyway, but Covid definitely sharpened it,” Ramscar says. “A societal shift is coming.”
She points out that the issue of general corporate behaviour will be a much broader story this year. Mulligan also expects the social aspects of ESG to be given more prevalence. “Employee welfare, health and safety, and diversity and inclusion have already been getting attention, but they are now getting more attention from institutional inves- tors than ever before.” So, it is not only the S in ESG that is important. Investors
Different views Ramscar sees diversity and inclusion having greater influence over how people will think about their investments in the com- ing months. “It is now part of every conversation,” she adds. “Obviously, the interest in climate has been amplified this year, but it will be important for asset managers to consider diversity and inclusion within the investment process.” Gender diversity has been a focal point for LGIM’s decision- making for years but they will now also vote against a chair’s re-election if there is not appropriate ethnic representation on the board. “That is going to be much more pointed in 2022,” she adds. “People want to see some teeth behind these conversations.” Regulation focused on disclosure and governance has been a big part of the UK’s evolving ESG landscape for around three years now, but Tim Manuel, co-head of responsible investment at Aon, expects to see trustees pushed further into the public eye in the year ahead.
“In 2022, we will see more of a focus on investment decision- making processes, in particular, addressing the lack of diversity across trustee boards,” Manuel says. He is still seeing trustee boards with limited diverse represen- tation amongst decision-makers, despite ‘doing things differ- ently’ being a big part of responsible investing. “We are con- fronted with challenges and a future that is bound to be different,” Manuel says, “so it is important to have a range of viewpoints and life experiences to tackle that. “It is the elephant in the room,” he adds. “A lot of problems are framed in ways that connect to the symptom rather than the underlying cause. A lack of diversity is a fundamental chal- lenge that needs addressing.”
There is one factor that could speed up progress in these areas and one asset manager would not be surprised if it happened sooner rather than later.
“I suspect that where regulation has gone on the climate side, it will only be a matter of time before this is reflected on the S and G,” Ramscar says.
This is a big theme in the sustainable investing world. Amun- di’s Guignard believes that rising ESG demand leads to rising requirements in terms of data, reporting standards, regulation
Issue 109 | December-January 2022 | portfolio institutional | 29
should not forget to consider issues surrounding the G, too. “We will see increased attention paid to boards being fit for purpose,” Mulligan says. “We are already seeing closer scruti- ny by investors here.
“It is interesting that a few years ago, when we formulated the responsible gold mining principles, we started with govern- ance. The idea is that you need good governance to be a precur- sor or prerequisite if other ESG performance standards are going to flourish,” he adds.
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