July 26, 2023
ESG and Sustainable Investing at OWIN23: Insights from a panel discussion on Offering Evolution
Reading time: 5 min
OWINTALK | BEHIND BUSINESS, BEYOND NEWS
In this captivating panel discussion led by Roberto Ferrari, Digital Reinvention Community Leader at Qorus, industry experts and Objectway clients investigated the dynamic and ever-changing landscape of ESG and Sustainable Investing.
Joining the conversation on the stage of OWIN23 were prominent figures such as Stefano Rossi, CEO at Euclidea, Elisabete Pinto Pereira, Deputy Executive Director at Novobanco, Ivo Darnley, Managing Director at Rathbones, and Laurits Louis-Serup Kjaergaard, Business Development Manager at Investering & Tryghed.
Navigating the Complexities of ESG and Sustainable Investing
ESG and Sustainable Investing are fast becoming standard considerations when it comes to asset allocation. However, there is an educational angle to consider, not least that ESG and RI considerations do not come at the expense of returns; instead, a company that scores well on ESG and RI is more likely to yield returns.
In Italy, at least, one of the issues is that cost is quite opaque. Therefore, transparency and a balance when it comes to the cost of a proposition is key.
Stefano Rossi, Chief Executive Officer at Euclidea, comments:
In my mind, having the right amount of cost, vis-a-vis the products and the portfolios that you’re running for clients, is a huge theme for sustainability in the medium and long term. If portfolios are overcharged, and the cost is too high, clients don’t make money, they get tired and do something else with their savings which makes it detrimental to performance.
Our model is simplicity and transparency. It means building trust – without that, there is no banking, Rossi adds.
Indeed, implementing ESG preferences as part of the overall investment process has been a challenge. Elisabete Pinto Pereira, Deputy Executive Director at Novobanco, says that the biggest issue is the complex concept itself for advisory and managed accounts business clients at her firm.
The biggest issue is incorporating the concept of ESG and using the best taxonomy to make things explainable and understandable to allow for informed decision-making. I think it would be very beneficial if we had a standard and plain language that is accessible and easier to understand to better frame and understand the options.
Eventually, it’s all about customers and people. You want to give clients the best service, which means making sure they understand she says.
Indeed, a lack of cohesive and standard data is an issue.
Ivo Darnley, Managing Director at Rathbones states that MSCI, for example, recently rearranged its calibration, and other analytics companies too, such as Sustain analytics, are not using a standard method, so that makes it really hard to be accurate and compare like with when it comes to assessing and reporting.
The terminology is evolving as well. ESG, sustainability, and responsible investing are different things, but they tend to get bundled together, he says.
And further comments:
It would be really helpful if the financial services community could come up with some terminology and a methodology that we all can agree on and use.
Evolving the Offering & Integrating ESG
Knowing about the interplay between a balanced portfolio, risk and volatility, and ESG factors is a big part of that understanding.
Darnley comments:
Integration is very important to the investment process. We aren’t going to exclude any sectors. Instead, we are trying to engage actively and with consequence. Transparency is something else we hold dear, and education plays a big part. We put all our investment managers through six hours of training and then made them sit an exam with an 80% pass rate. We made our chief executive officer do it, and our CFO do it as well.
Darnley continues:
We think that about 90% of our client base accepts our responsible core. We’ve got 5% of our client base in our Green Bank, so that is at the extreme at the pioneering side, and therefore we are left with this middle 5% that seemingly wants a bit more than we can give from our responsible core but do not want quite as much as our green bank offering. And so that is what we are grappling with. How do we fill that middle bit? Do we lift the whole of our clients up a bit higher?
The relationship between returns and ESG also needs a better understanding. This is all the more so given that inflation is a big topic. There is also global geopolitical uncertainty.
Laurits Louis-Serup Kjaergaard, Business Development Manager at Investering & Tryghed comments:
We have created some new short-term bonds around the inflation issue and also introduced some alternatives so that you can have more balance than your portfolios, and this is done in the asset allocation group. We also have an ESG group that reports to the asset allocation group. So whatever decisions they make, they will double-check whatever is going on. And in both groups, we have client advisors so that they always have the client in mind when making decisions.
Rossi adds:
An issue with bonds is that in Italy, at least, they are associated with no risk, and so there is an educational play. Interestingly the part of our website that houses financial education received 5 million visits last year. I think financial literacy is a common issue in Europe and the regulators should be pushing institutions to do more financial education.
Going back to customers and how they might understand sustainability, Darnley states:
You need a balanced fund to mitigate against risk and volatility and tread the line between performance and RI. It is working through that complexity, making it simple and practical. Indeed, if you look at the individual components of ESG, then that adds up to a well-managed business – one that will give good returns. That’s an easy one to understand, he concludes.
Rossi emphasizes the need for the industry to develop tangible and perceptible products from the perspective of final clients. He suggests that providing something visible and touchable for clients is essential, but also acknowledges that achieving this goal can be challenging.
The panel agreed that the current economic situation will not hinder capital flow into ESG products. Regulators are actively setting directives, and companies have already specific metrics and commitments to fulfil, so there is no way back. According to Kjaergaard, political pressures, incentives, and the emergence of a new demographic in the market are all strong signals for ESG investments.
