exposure is, in some cases, open ended. An investment of £10m could have a liability of £1bn if you are not careful. You have to negotiate and get the side letters in place to miti- gate your exposure. With some trustee boards there is an ele- ment of ignorance is bliss in that they do not realise what they have entered into. Humphreys: ESG is a journey in private markets. Different asset classes are at different stages and the data is better in some assets than others.
The idea that it is all sweetness and light in public markets is nonsense. There are labelling issues. Then if you include nuclear in Germany they show you the door. If you don’t include it in France, they show you the door. We should not be frightened of grappling with ESG in private markets because we think it is okay in public markets. Aylott: It is easier to build an ESG portfolio today than it has ever been because of the opportunity set. There is a lot of inno- vation, a lot of impact being created in the early stages. Managers are focused on ESG and are more aware of what their limited partners expect, what their portfolios are doing and what their employees expect. There is definitely a shift towards being better stewards of capital from an ESG perspective.
ESG means different things to different people: from not want- ing to do any harm to making a positive impact. The key is defining what it means for you and what you are looking to get out of your portfolio. We work with clients on impact portfolios and those with mature portfolios who want better ESG credentials. Getting managers to look at their portfolios through an ESG lens, to re- engineer what they have invested in before is the tricky part. Whereas, if you are starting from scratch today, there is a wealth of opportunities to consider. Job: We all agree that ESG certainly is a journey. Nonetheless, while private market strategies are all different, they lend them- selves well to having ESG considerations built into the invest- ment process. As such, when you are doing a manager selec- tion exercise or a due diligence review, it is important to ascertain, for instance, the role ESG plays in the investment process. That is, whether it is simply a tick box exercise or if it is more important, such as having a veto on investments. Sumpster: With the billions larger insurers have available we can be impactful in our direct investments and ensure trans- parency in every investment decision our managers make. Our investment process includes ESG as a key consideration. Phoenix is more than doubling the number of people looking
While the outlook is strong there may be a
few bumps in the road. Anish Butani, bfinance
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