regularly, having a responsible investing specialist around the table is a powerful situation for us.


Covid has taught us that it is a bad idea to ignore an existential problem. Edward Lees, BNP Paribas Asset Management


PI: Can investors with a short-term mandate make a sustainable impact? Lees: It is possible to make an impact in the short term. One can pull together and deliver strong messages to management that might take a long time to be fully implemented but can still sink into their near-term strategy meetings and result in operational changes.


As an investor, you can make an impact in the short term by mak- ing sure that your money goes into the ground, not just buying in the secondary market but being active in placements and engaging with management. One has to look beyond ESG scores and think about what compa- nies are doing. What problem is their product or service solving and then guide capital towards it.


PI: How important is active management in a responsible invest- ment strategy? Llewellyn-Waters: There is a huge advantage to being active when considering broader ESG factors. The industry has raced to apply a blunt tool here by aggregating often single scoring mechanisms. We do not do that with financial analysis, so I am not sure why we as an industry do it in broader stakeholder analysis. A lot of these issues are complex and non-binary and having dec- ades of experience to navigate some of these complexities are a key advantage. This is particularly because we sometimes have false positives skewed by the depth of disclosure from corporates. Being active is a key advantage. Burger: The mechanics of being an active investor means we can avoid some of the worst situations. In our box there are several tools we can use. The power of collaborative engagement is a great tool to have and we have realised that more over the past 12 months. The ultimate tool of the investor is the divestment threat. It means that we can avoid the worst players and engage individually or col- laboratively with transitioning companies where there is the potential to improve. A prime example is BP. Back in 2019, through Climate Action 100+, Newton and a bunch of other inves- tors helped BP to think harder about its energy transition plans. On a fixed-income basis, for a corporate that recycles its debt


PI: Michael, does Railpen use ESG scores when assessing an investment? Marshall: For our internal active mandates, my team works with Railpen’s equity analyst and portfolio managers to get under the bonnet of companies by looking at corporate disclosures, sell side notes and data from providers such as Glassdoor. The score we receive from data vendors narrows our search onto what is finan- cially material, but it is not the end point. Sometimes data vendors try to serve too many masters. Our objec- tive in undertaking this analysis is to uncover financially material ESG risks, but some ratings are not targeted at one thing. They are trying to do something that is ethical, something that is financially material and something that makes an impact, so we cannot place 100% reliance on them. Firth: We use several ESG providers. It is about identifying poten- tial risks associated with investments and companies. It is a start- ing point ahead of a deeper analysis, but a lot of these metrics are backward looking and do not take account of a company’s plans. If, for example, a company was rated lowly by one provider, we would not necessarily see that as a reason not to invest. If the underlying investment rationale was sound and management had taken action to mitigate its ESG risks, it could drive a re-rating of the stock price and better long-term returns.


ESG scoring is one of the tools in our toolbox along with forward looking metrics, such as carbon management plans. It is about identifying those risks, doing deeper analysis and being confident in a stock’s investment case. Jackson: ESG scores and traditional ESG metrics may be a useful screening process but they are a footprint in time. They are back- ward-looking and summarised to give a snapshot of whether something is ‘good’ or ‘bad’. Yet these factors do not have a right or wrong answer. We need to understand the complexities of the data


March 2021 portfolio institutional roundtable: Responsible investing 9


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