Responsible investment’s environmental, social and governance (ESG) factors are rising in prominence in the fund industry, so much so that continued ignorance of them could be perilous, heard attendees of the Association of the Luxembourg Funds Industry (ALFI) Spring Conference.
Panel moderator Jane Wilkinson, a partner at KPMG Luxembourg, suggested that in the future, ‘millenial’ investors will be looking for tailored responsible investment products, simple platforms, and good branding, as well as simplicity, flexibility and transparency in their investments. She added that responsible investment funds are “well positioned to seize these opportunities”.
Louise Hedberg, head of corporate governance at the Swedish East Capital International, said that companies that are well managed in every sense are those more likely to achieve long-term results. Although responsible investment may pose a risk, well-managed firms will be better placed to mitigate these risks while capturing the opportunities.
By actively engaging with the emerging and frontier market companies that it invests in, East Capital International can help them to integrate ESG factors and understand where they “can influence valuation over time”.
The panel also discussed the recent decision of Morning Star and MSCI to rate investment funds for sustainability.
Hedburg called this “a good start” and a step toward helping investors and retail clients understand what they’re getting from responsible investment. She said: “It will certainly help to at least illustrate what actually comes out of responsible investment strategies.”
Another panellist, Philippe Zaouati, CEO of Mirova in Paris, also called this a “very important move” that will help to promote ESG funds in the market. But he also expressed concern over the use of only one data provider.
Zaouati added that there are significant differences in the ways that data providers and rating agencies come to a rating conclusion, suggesting that this “could create some strange results”.
The panel concluded with Hedburg stressing that management firms are typically aware of the risks involved, but should start to focus on the opportunities, too.
Zaouati expects responsible investment to be a success, as it is in line with conventional society and the demands of millennials.
He added that it is important to create a convergence between the fund industry and the way that society is moving forward, advising attendees that it is a case of “investing in the world we would like to happen, the not the world we have today”.
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