From the CFA Institute's Market Integrity Insights, May 22:
In Asia, the subject of environmental, social and governance (ESG) investing has been a very trendy topic. For many years, many investors have tried to incorporate elements of values and social responsibility into their investment strategies. However, the return on these strategies has in the past left a lot to be desired. It is natural to wonder why a rational investor would be willing to compromise the chances of superior performance in return for moral gratification.
Well, past performance is not always a guide to future performance, and change is in the air. More and more investors and asset owners are now placing increasing focus on ESG. As an example, California State Teachers Retirement System, one of the largest asset owners in the world, has asked their fund managers to evaluate and assess 21 risk factors in each of their holdings, including, among others regulation, human rights, environmental and governance.
What is Bringing this On?
On 27 April 2017, CFA Institute hosted a Green Finance Forum in Hong Kong to explore this issue. The event was organised in conjunction with HKU SPACE and the Financial Services Development Council (“FSDC”), an advisory body that conducts policy research for the formulation of proposals to the Hong Kong government. This is the second event in the series and we were fortunate to have several industry veterans join us as speakers.
Martina Macpherson, Global Head of Sustainability Indices, S&P Dow Jones Indices, kicked off the evening’s proceedings with a keynote speech, during which she presented the milestones of sustainable investment over the last decade as well as the growing demand of “green” instruments by investors.
As an indicator, global labelled green bond issuance in 2016 was US$93 billion — more than double the amount of US$41 billion in 2015 — and approximately US$36 billion were issued by China alone. Furthermore, there have been concrete actions from the corporate sector in their commitment to create long term shareholder value in terms of reporting, tracking and measurement of sustainable development goals.
In time, the value chain will move from “green” instruments to sustainable finance, and with improved data and metrics, investors should be able to make better investment decisions on the elements that are most relevant and investable.
The Growth of the ESG “Phenomenon”
Ms. Macpherson’s presentation was followed by a panel discussion in which she was joined by industry veterans in professional advisory, investment banking, and asset management, whose work give them different perspectives of the ESG “phenomenon.” During the panel discussion, we explored some of the reasons behind the growth in sustainability investments, the importance of aligning definitions and standards, the evidence of a positive correlation between ESG and investment performance, and how integrating ESG issues into investment decisions may be more natural and instinctive than most people assume....MORE