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Thematic Investing: this type of investing focuses on an ESG trend, allowing inves- tors access to structural economic themes such as low carbon, clean energy or inclu- sion and diversity.
Impact Investing: this approach focuses on generating a measurable sustainable out- come alongside a financial return. It is de- signed for long-term investors looking to drive measurable change.
The depth and quality of ESG data available has evolved. New technologies and method- ologies have allowed us to make great strides in improving sustainability data, as can be seen from the wide range of options that ESG ETFs have to offer. Our research, which relies on back-tested data, shows how ESG-focused indices have matched or exceeded returns of their standard counter- parts, with comparable volatility. We find ESG has much in common with existing quality metrics such as strong bal- ance sheets, suggesting ESG-friendly port-
has been remarkable over the last few years, forcing investors to include ESG into their investment processes. Regulation and so- cial awareness have been key to the growth of this type of investment. We saw this with one of the largest private pension insur- ance companies in the Nordic region.
folios could be more resilient in down- turns. This suggests that ESG is not just a box-ticking exercise, to be performed by schemes to satisfy the criteria of new regu- lations. It can enhance returns and ETFs of- fer a cost- efficient and operationally effi- cient way to get exposure to this theme. In the UK, we have seen that, ahead of new regulations, local authorities have been shifting their index allocations into low-car- bon alternatives. The shift in other regions, such as the Nordic or Benelux countries,
BlackRock worked in close collaboration with the client to create a core sustainable solution for its US equity allocation, which was a part of a broader integration of ESG characteristics within the investment strat- egy. This case is a testament to the transfor- mation we are seeing in the Nordic region, with institutional investors shifting their portfolios from standard
to sustainable
benchmarks, and it highlights the impor- tance of collaborating with clients to build solutions that meet their criteria.
Issue 88 | November 2019 | portfolio institutional | 39
Assets in dedicated sustainable investing strategies around the world have grown at a rapid clip, driven by societal and demo- graphic changes, regulation and increased investment conviction. Incorporating rele- vant sustainability insights can provide a more holistic view of the risks and opportu- nities associated with a given investment. There is no one-size-fits-all approach, but the opportunity to improve investment pro- cesses by integrating material sustainabili- ty considerations is real and growing. To that end, a perfect storm is brewing, that will mean ESG climbs towards the top of the agenda for European pension funds and consultants. Between a changing regu- latory environment, improving data and a proliferation of investable products and so- lutions, the scene is now set for European pension funds to become significant inves- tors in investment strategies that help meet their liabilities, as well as delivering a posi- tive societal outcome. The road won’t be smooth, nor will it be immediate, but a con- tinuing increase in ESG investing across the sector is becoming irrefutable.
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