Let’s not neglect ESG anymore! | Council

WHAT ABOUT INCOME?

Perhaps the most pervasive myth when it comes to ESG is the issue of performance. Many investors are interested in this type of investment, but refuse to start for fear of leaving money on the table.

According to Simon Ste-Marie, Vice President and ETF Specialist, Invesco, this myth originated in the 1960s. here, the managers were only applying the exclusions, which effectively led to various degrees of underperformance. Since then, however, the ESG has used many other instruments, but this bad reputation has stayed with it.

Indeed, David Ung, Senior ESG Analyst, Manulife Investment Management, reports that this is among the three questions he hears most often from managers.

Yet ESG is far from detrimental to performance. According to both experts, it is more a form of risk management.

A company that releases too much CO2 He could receive a fine, which would harm his financial statements and therefore his investors, explains Simon Ste-Marie. And as with a market crash, it’s hard to predict when it will happen. It is therefore good to invest in companies that address these risks before they arise.

ESG enables richer analysis, better, more holistic valuation, and better alignment of investments with clients’ interests, says Maral Dolmadjian, Investment Product Specialist, Sun Global Investments Asset Management Life (PMSL ).

According to her, in addition to allowing better risk management, this also allows you to take advantage of investment opportunities. Indeed, underlines David Ung, encouraging companies to adopt a management that takes into account these criteria, this will encourage them to improve. “If we are able to be there before the companies improve, we can capture the alpha,” he sums up.

As for disinvestment, this strategy, which is the basis of the myth of underperformance, is no longer used systematically. For example, PMSL believes more in engagement than disinvestment. “We want to be at the discussion table, to have a voice to move towards sustainable and concrete economic results,” says Maral Dolmadjian.

LACK OF KNOWLEDGE

If myths still have such a tough skin, it is because in addition to clients, advisors also lack knowledge when it comes to ESG investing. An Association for Responsible Investment (AIR) survey last January showed that while 85% of advisors surveyed said they were very or fairly comfortable starting a conversation about responsible investing, the his knowledge of the subject is weak. Thus, only 6% of the respondents correctly identified the three true statements out of ten statements about IR.

According to Simon Ste-Marie, this lack of knowledge explains the reluctance of advisers to explain the subject of ESG. Many of them also say that they only have older clients and that they are not interested in responsible investment. However, this is false, according to the expert. According to surveys, all generations have an interest in ESG investing.

The latter understands that there are many terms, definitions and different methodologies, but advises not to paralyze and rather start in stages.

David Ung also believes that education is essential and this must be continuous, as the sector is constantly evolving. “The sooner you educate yourself, the sooner you can speak,” he insists. Above all, he recommends not waiting before launching, because, according to him, it is certain that customers will approach the subject, and sooner than you think.

In fact, the interest of customers is constantly growing. According to the AIR opinion poll published last December, 77% of respondents said they wanted their financial services provider to inform them about responsible investments that match their values, while only 27% they said they had asked before if they had an interest in their interests. responsible investment, and that 33% of respondents said they had responsible investments.

We can therefore see that there is a great interest in these investments and that ESG investment is not going to stop. This is even more so since in addition to the interests of investors, there are government regulations. In Europe, investment funds must now specify whether their funds are responsible investment funds or not, which can complicate marketing for the non-responsible. Thus, governments encourage companies to take ESG factors into account.

WHAT ABOUT GREENBLEACHING?

Since the rise of ESG, we hear a lot about greenwashing. Until regulations address this trend, how can we ensure we avoid the bad apples?

David Ung has the answer. According to him, funds and managers should be evaluated according to three criteria:

  • Clarity: if you want to invest in an ESG fund or with a manager, your goal must be clear;
  • Transparency: the fund or manager must publish its data every year to show that it is approaching its goals;
  • Credibility: what are the ESG performance ratings of the fund or is the manager recognized?

If these questions are difficult to answer, then it is important to talk to the manager or service provider. If the answer is still unclear later, David Ung recommends avoiding the fund or manager.

In conclusion, ESG is not a fad, especially considering global warming and current geopolitical tensions. Don’t wait for customers to tell you, take the lead. Get on board, before you get left behind

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