Responsible
Reflections:
Adviser Insights
from the World of
ESG Investing
Responsible
Reflections:
Adviser Insights
from the World of
ESG Investing
- Introductions
- Responsible Investing and ESG integration defined
- Consumer interest is strong and growing
- Fund flows into ESG and other responsibly managed investments
- Adviser Reflection - ‘Clients have eyes wide open on these topics’
- Adviser reflection - ESG investing is for all ages
- Adviser reflection ‘Focus on economic sustainability’
- Manager Reflections - exponential growth in green bond issuance
- Adviser Reflections - ESG options now available across all asset classes
- Companies with poor ESG records pay a performance penalty
- Adviser reflections: ESG investments add alpha and reduce risk
- Responsible Investing is about more than just climate
- Manager Reflection: A balanced approach to ESG
- The challenges in looking under the hood
- Adviser reflection: navigating the nuances of greenwashing
- Questions to ask of an ESG manager
- ASIC guidance on ESG and advice processes
- Adviser reflections - best interests and financial stewardship
- In summary
Questions to ask of an ESG manager
Advisers and investors seeking the confidence of a true to label’ ESG manager can look for a number of attributes.
How committed to ESG and responsible investing is the manager? Are they just testing the green wave to see how long it continues? Do they have only one or two ‘sustainable’ funds, or is their entire offering based on ESG principles?
Do they have ESG subject-matter experts dedicated to engagement, stewardship, and responsible investing? If so, are their backgrounds and education steeped in corporate sustainability, environmental data science and social advocacy experience?
What is their own approach to ESG, in terms of diversity and inclusion, working conditions, and emissions reductions?
Are they signatories to the various global Principles and Guidelines around sustainable investing, or members of groups such as the Investor Group on Climate Change (IGCC) or the TCFD?
What firms do they invest in, and do they actively engage with those firms?
How transparent are they, and how well are they able to link investment activity with environmental/social outcomes? And can they quantify those outcomes it in a way that is easily understood?
For example, in 2020, PIMCOs Climate Bond Strategy held green and sustainable bonds linked to projects that helped avoid almost 70,000 tons of carbon dioxide equivalent emissions. In Figure 6 below, this has been expressed in a more tangible way.
FIGURE 6: AVOIDED EMISSIONS PIMCO CLIMATE BOND STRATEGY
69,798 tCO2e(tons of carbon dioxide equivalent) is similar to:
Source: PIMCO 42
One of the most important things to look for is whether they have a rigorous model for assessing individual investment opportunities.
An example of such a model is that used by PIMCO, one of the world’s leading active ESG Fixed Interest Managers.
FIGURE 7 BELOW DETAILS PIMCO’S 3 STEP ESG INVESTMENT PROCESS.
Source: PIMCO 43
This process combines ESG-focused portfolio construction with active engagement and transparent reporting.
Central to this process is PIMCO’s own proprietary Green, Social and SDG Bond Scoring System shown in Figure 8.
FIGURE 8: PIMCO’S GREEN, SOCIAL AND SDG BOND SCORING SYSTEM
Source: PIMCO 44
PIMCO is also a highly active ESG fixed interest manager, and during 2020 engaged with over 1500 corporate bond issuers across many sectors, on topics including greenhouse gas emissions, human labour rights, product safety, governance, land use, and conduct and culture.
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References
42
Bonds for change, ESG Investing Report, PIMCO, 2021.
43
Introduction to Sustainable Investing, presentation prepared by PIMCO, October 2021.
44
IBID.
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