ESG investing, hard to miss

What about performance?

Perhaps the most prevalent myth when it comes to ESG is the performance issue. 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. There, managers only applied exceptions, which effectively led to some level of poor performance. Since then, however, ESG has used many other tools, but this bad reputation remains here.

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

However ESG is far from detrimental to performance. According to two experts, this is more of a form of risk management.

A company that emits too much CO2 may receive a fine, which will be included in its financial statements and therefore its investors, describes Simon Ste-Marie. And as the market declines, it’s hard to predict when this will happen. Therefore, it is advisable to invest in companies that respond to these risks before they arise.

ESG allows for better analysis, better, more holistic analysis, and better alignment of investments with client interests, says Maral Dolmadjian, Investment Product Specialist, Sun Global Investments Asset Management Life (PMSL).

According to him, in addition to allowing better risk management, it also allows you to seize investment opportunities. In fact, David Ung underlined, by encouraging companies to adopt management that considers these standards, it will encourage them to improve. “If we were there before companies thrived, we could get alpha,” he summarizes.

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

Lacking in knowledge

If legends still have tough skin, it’s because apart from clients, advisors also lack knowledge when it comes to investing in ESG. A survey by the Association for Responsible Investment (AIR) in January showed that while 85% of advisers surveyed said they were very or somewhat comfortable starting a conversation on responsible investing, their knowledge of the subject was weak. Thus, only 6% of respondents correctly identified three true statements out of ten IR statements.

According to Simon Ste-Marie, this lack of knowledge explains the reluctance of counselors to discuss the topic of ESG. Many of them also claim that they only have older clients and they are not interested in responsible investing. However, this is not true, according to experts. According to surveys, all generations have an interest in investing in ESG.

The latter understands that there are many different terms, meanings and techniques, but he advises not to be paralyzed and instead start with stages.

David Ung also believes that education is important and it should be continuous, as the sector continues to grow. “The sooner you educate yourself, the sooner you can talk about it,” he insists. Above all, he recommends not to wait before launch, because, according to him, surely customers will approach the topic, and earlier than you think.

In fact, the interest of customers continues to grow. According to the AIR opinion poll published in December, 77% of respondents said they wanted their financial services provider to let them know about responsible investments that match their values, while only 27% said they asked they were then if they had an interest in responsible investing, and 33% of respondents said they had a responsible investment.

So we can see that there is a lot of interest in these investments and ESG investment will not stop. This is more because in addition to the interests of investors, there are government regulations. In Europe, investment funds must now determine whether their funds are responsible investment funds or not, which can complicate marketing for the irresponsible. Thus, governments encourage companies to consider ESG factors.

What about greenwashing?

Since ESG has risen, we have heard a lot about greenwashing. Until regulations address this trend, how can we ensure that we avoid the bad apple?

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 in a manager, your purpose should be clear;
  • Transparency: the fund or manager must publish its data each year to prove that it is approaching its goals;
  • Credibility: what are the fund’s ESG performance ratings or is the manager recognized?

If these questions are difficult to answer, it is important to talk to the manager or service provider. If the answer is still not clear after that, David Ung recommends avoiding the fund or the manager.

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

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