The increasing importance of ESG (environmental, social and governance) is creating challenges for investment managers and funds as they try and find the right balance between seeking returns and this commitment.
That was at the heart of the debate that took place in a panel discussion held at the Cayman Alternative Investment Summit (CAIS20), which is taking place in the Cayman Islands this week (February 6-7).
The session, called Fast and Furious: Accelerating ESG Into Alternative Investments, was chaired by Leanna Orr, the deputy editor of Institutional Investor, and featured an all-female panel.
Studies show that most hedge fund managers are more serious about ESG now than they were a year ago, Orr said. This is because investors are forcing this agenda.
“For a long time, though the topic was regarded as interesting, no one read articles on ESG,” she said. “That has changed in the past six-to-nine months. Our most read article last year was a long piece on ESG investing.”
Large fund managers such as BlackRock, which is divesting some $1.8 trillion of its actively managed funds from coal focused companies, are playing an important role, she said.
Barbara Ann Bernard, founder and CIO of Wincrest Capital, said that, despite the recent increase in interest in ESG among investors, this has actually been a long time coming. Some of the early thinking about this theme started some 35 years ago, she noted.
“This has not happened overnight, it has been 35 years in the making,” she said. “Back then, they were taking about stakeholder capitalism; of course the shareholder matters but companies also have a moral obligation to ensure things are sustainable for the supply chain and their employees and society as a whole.”
Bernard noted that 85 percent of the value of the S&P index is now made up by intangible assets such as brand, trust, loyalty and sustainability. “There has never been a riskier time to not run a company sustainably,” she said: some 80 percent of insolvencies are attributed to poor corporate governance, she added.
Asha Mehta, director of responsible investing at Acadian Asset Management, said the perception of ESG has changed in the past 12 months, with investors now pushing for it to be expressed in investment mandates. Investors are increasingly trying to quantify ESG, she noted.
She argued the demand side is only one part of the explanation for this. “There is a new generation of millennials that have different priorities and the rise of women into more senior positions is also making a difference,” she argued.
Anna-Marie Wascher, CEO of Flat World Partners, agreed that investors are more interested in ESG than ever, and about the importance of data and research in driving investor perceptions of certain investments. “I would say the biggest opportunity is in terms of alpha generation for those that can truly understand and interpret the data,” she said.
Kareen Stangherlin, CEO of Zelos Capital, argued that ESG is increasingly expected to be part of fiduciaries’ responsibility. “There has been a mindset that an analysis of ESG is consistent with fiduciary duty,” she said.
“Our duty is to the corporation and all stakeholders, not necessarily just shareholders. And my view is that, if you get the governance right, then the decisions about environmental and social issues will be dealt with as part of a sustainable business plan. When you have the right conversations, the right planning and decision come to the forefront of things. It makes for good long-term planning and a sustainable business,” she said.
CAIS20, Environmental, social and governance, Barbara Ann Bernard, Wincrest Capital, Cayman Islands