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Sustainable investing is here to stay
Armit Bhambra Head of iShares UK Retirement, BlackRock
Sustainable investing was once viewed as a trade-off between value and ‘values’. Yet to- day, it’s something investors can no longer afford to ignore. What has changed? More granular data, more sophisticated analysis and a shifting societal understanding of sustainability, as well as growing awareness that environmental, social and governance (ESG) factors can be tied to a company’s long-term growth potential. Regardless of investor views, ESG is in- creasingly on the agenda – especially for UK trustees who, from October 2019, will be required to show more formally how they have taken ESG into consideration. The updated Department for Work and Pensions regulation on the statement of in- vestment principles requires trustees to give clear indications on how ESG and in- vestment stewardship factors are consid- ered within investment arrangements. These include ‘Financially material (ESG) considerations’ over the appropriate time horizon for investment; ‘Non-financially material’ ESG considerations, if trustee boards have any and a statement on en- gagement activities.
This new requirement has been met with varying levels of engagement from differ-
ent schemes. This may be partly due to dif- fering circumstances, but also the range of attitudes in the sector towards what can be a controversial subject. One point worth stressing, however, is that there is an in- creasing tendency to take more informed views on this area, and this focus will stead- ily increase as more and more reliable data becomes accessible to investors. Access to good quality information on prospective in- vestments at worst does not change your investment thesis and, at best, it trans- forms an investor’s view. Taking this into account is a key part of the process for pen- sion scheme arrangements. BlackRock defines ESG integration as the practice of explicitly incorporating environ- mentaln, social and governance informa- tion into investment decisions to help en- hance risk-adjusted returns.
As a result, we have launched a firm-wide, global effort to integrate sustainability con- siderations into the investment process. This mirrors the diversity of clients we serve, as well as the range of investment strategies and asset classes we offer. Across BlackRock, we provide all our investment teams with data and insights to keep them well-informed of sustainability considerations.
This leads to our interest in offering sus- tainable solutions that allow our clients to attain their financial objectives. The range of sustainable investing options is broad, reaching all the way from green bonds to renewable energy infrastructure. Further- more, BlackRock is the largest provider of sustainable ETFs, including the largest low- carbon ETF in the market. ETFs are a great choice to navigate this
38 | portfolio institutional | November 2019 | issue 88
new sustainable environment, for three main reasons. First, they offer a minimal tracking error, being a relevant substitute for those products that track traditional in- dices. Second, they have a low cost and are an easy way for schemes to show their ESG involvement without having to invest all their time into this trend, which is here to stay. Finally, ETFs allow investors the op- portunity to invest in a wide range of prod- ucts, with varied exposure to the amount of sustainability they are willing to get in- volved in. However, even though the proliferation of ESG options is good, it is important to un- derstand what form of ESG implementa- tion you are looking at. The BlackRock iShares ESG ETF range can be divided into five areas, which start from avoiding expo- sures that conflict with your social objec- tives, all the way to target outcomes that ad- vance your social and financial objectives: ESG Screened Range: this eliminates expo- sures to companies or activities that pose certain risks, or which violate an investor’s values. It is designed for investors looking to screen out controversial business areas while maintaining a profile similar to tradi- tional benchmarks. ESG Enhanced Range: the objective is to maximise ESG scores (calculated and pro- vided by MSCI), subject to a target tracking error. It is designed for those investors building sustainable portfolios. SRI Range: a socially responsible invest- ment (SRI) approach is used to gain expo- sure to the top ESG performers in each sec- tor. It is designed for those investors with the highest commitment to, and conviction towards, the top ESG performers.
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