The challenge for financial institutions is to consider the long-term implications of their investments. Climate change is an important topic, but human rights, labor standards and business ethics also require attention, as society and regulators are increasingly holding companies and financial institutions to account for their contribution to our common future.
The question, therefore, is where to start. A seven-step process can help make decisions on, and succeed in, sustainable investing (SI). The steps are:
1. Defining a purpose
First and foremost, time needs to be spent discussing and assessing the motivations for adopting SI with stakeholders, including clients. Some of the key drivers range from reacting to external pressure to being a full, pro-active believer in the benefits of SI.
Once these motivations are clear, it is a matter of drawing up a policy statement, or incorporating them into a statement of investment beliefs.
2. Setting priorities
A statement of priorities could help identify critical sustainability themes. There are several international codes and frameworks that can be of help, such as the United Nations Global Compact, or the Rio Declaration on Environment and Development.
Alternatively, an investor might prefer to focus on specific issues such as climate change, in this case using the Paris Agreement as a basis for developing a policy. The UN Sustainable Development Goals can also provide substance on how to frame goals and priorities.
It can be challenging to translate purpose and priorities into an investment strategy. The key task is to balance specific sustainability requirements with their impact on risk and return, and to do this over multiple asset classes. Broadly speaking, the three key considerations should be using overlays, adopting themes, and running risk/return analysis. So let’s discuss these in turn.
3. Considering overlays
Generally speaking, applying an overlay across an entire portfolio should not directly affect its performance. There are several overlay solutions within sustainable investing, led by the use of voting for equity holdings, engagement with companies to seek ESG improvement, or the exclusion of companies and countries
Most asset managers employ a voting strategy for their funds and mandates, though policies and practices can differ quite substantially. Engaging with companies can be a powerful tool for change: better control of ESG risks and awareness of opportunities can lead to better financial performance, and have a positive impact on society.
4. Theme implementation
There are several ways to implement a theme, be it climate change or more bespoke issues such as water scarcity or labor standards. One is by avoiding the worst offenders, or integrating the factor into investments: portfolio exposure could be targeted on the specific factor.
The investor could also engage on the specific theme (including voting and submitting shareholder proposals), or finally, invest in companies that provide solutions to the issue.
5. Risk/return analysis
Implementing sustainability characteristics can have an impact on the risk or return expectations for the portfolio. The implications will differ depending on the goal and the instrument used.
The process of setting sustainability objectives, determining a strategy and implementation is very similar to that of a regular investment process. In quantitative investing, the effect of applying sustainability guidelines and themes is easier to quantify using evidence-based research. In fundamental strategies, the ex-ante effect of using ESG criteria might be less easy to calculate.
6. Manager selection and monitoring
Once the initial steps are complete, it should be relatively straightforward to set up guidelines for asset managers. For large investors investing in segregated solutions, sustainability factors can be built into existing mandates if the asset manager has a good understanding and experience of SI. This might be more difficult for investors using pooled vehicles.
In both cases, the first task could be to assess the strength of the current manager(s) in relation to SI. An effective way to promote change would be to engage with them on improving their sustainability profiles. Holding roundtables to share knowledge can also be a powerful tool for change.
7. Integrating and evaluating
As a final step, the chosen objectives should be evaluated once a year, based on the sustainability reports of the managers involved. Ideally, this process should form part of the regular investment cycle to create a truly integrated ESG approach.
To sum up, implementing sustainable investing can take many years, and we therefore believe that investors should dip a toe into the SI water before jumping in. A first step could be to introduce exclusions and engagement, and a second to consider adding some aspects such as carbon footprinting or ESG integration to part of the portfolio.
The outcomes should be evaluated and monitored regularly, and could be embedded in existing structures as an effective way to achieve true integration. As experience in sustainable investing grows, so too will conviction.
当資料は情報提供を目的として、Robeco Institutional Asset Management B.V.が作成した英文資料、もしくはその英文資料をロベコ・ジャパン株式会社が翻訳したものです。資料中の個別の金融商品の売買の勧誘や推奨等を目的とするものではありません。記載された情報は十分信頼できるものであると考えておりますが、その正確性、完全性を保証するものではありません。意見や見通しはあくまで作成日における弊社の判断に基づくものであり、今後予告なしに変更されることがあります。運用状況、市場動向、意見等は、過去の一時点あるいは過去の一定期間についてのものであり、過去の実績は将来の運用成果を保証または示唆するものではありません。また、記載された投資方針・戦略等は全ての投資家の皆様に適合するとは限りません。当資料は法律、税務、会計面での助言の提供を意図するものではありません。
商号等： ロベコ・ジャパン株式会社 金融商品取引業者 関東財務局長（金商）第２７８０号
加入協会： 一般社団法人 日本投資顧問業協会