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No ESG plan would be ‘suicidal’

Amundi and BNP Paribas AM aim to integrate ESG factors across all products, and Willis Towers Watson expects more firms to follow - or lose business.

Globally, professionally-managed assets that follow any sustainability strategy – exclusion, ESG integration or impact investing – have reached around $23trn. According to a report by the Global Sustainable Investment Alliance, this represents at least $1 in every $4 under professional management.

With ESG integration becoming a mainstream activity, those that have no plans to include such factors in the investment process may be at risk of losing business, according to Luba Nikulina, London-based global head of manager research at Willis Towers Watson.

“All our managers that we classify as ‘preferred’ have existing ESG credentials. We have already de-invested in those instances where there was no desire to bring the standards to where they should be,” she told FSA recently.

Jayne Bok, the firm’s Hong Kong-based head of investments for Asia, described disregarding the integration of ESG factors as “suicidal”.

“What an asset manager does is mostly for commercial reasons, because they are for-profit businesses. So [I expect that] more will adopt ESG because it is essential to the ongoing concern.

“Right now, it will be suicidal for an asset manager to say ‘we don’t care about ESG’. You cannot do that.”

100% ESG?

Nikulina acknowledged that while many managers have taken steps with ESG integration, there are still no “best practices”.

“No one is perfect in this area and the whole scope of what it means to be ‘best-in-class’ in this area is evolving so quickly every year. When we do a sustainability review for our preferred managers, what we look for is their progress.”

Asset management firms continue to work on ESG practices. The latest development came from BNP Paribas Asset Management, which decided last month to integrate ESG factors into all of its managed funds by 2020, according to Paul Milon, Hong Kong-based sustainability and ESG integration specialist for Asia-Pacific.

Around €222bn ($250bn) of the firm’s €400bn AUM have integrated ESG factors, which include €37bn in specialised SRI or thematic investing, Milon said at a recent media briefing.

The integration is expected to include tighter exclusion policies on companies engaged in mining thermal coal and generating electricity from coal.

The firm also appointed Gabriel Wilson-Otto as head of stewardship for Asia-Pacific.

“Active engagement with companies is critical [to avoid greenwashing],” Wilson-Otto said at the briefing.

“If you take a third-party ESG score, for example, it may not reflect the reality of what is happening with a company. The ESG scoring framework of the different providers also uses different metrics, so a qualitative overlay [through engagement] is important.”

In October, Amundi similarly announced a three-year action plan that will integrate ESG analysis across all of its funds by 2021. Around €270bn of its €1.4trn AUM is currently integrating ESG in the traditional investment process.

ESG integration will take time, however. Although around half of BNPP AM’s AUM is in ESG assets, it started the initiative way back in 2002. Other fund managers, such as Franklin Templeton, Pictet Asset Management and Robeco also acknowledged that ESG integration is far easier said than done.

For some, such as Lion Global Investors, ESG integration is still under consideration, according to Lim Shyong Piau, the firm’s chief marketing officer.

“Certainly, it is an area that we are looking at, particularly integrating the holistic idea of ESG into the investment process. But that doesn’t mean we are launching an ESG product soon.

“We are mindful not to play the ESG theme for the sake of trying to be ESG.”

Regulatory driver

ESG investing has been driven by institutions, but regulation has also played a key part, with Europe being at a more advanced stage.

For example, the European Union in 2018 proposed a regulation that will introduce consistency and clarity on how institutions and asset managers should integrate ESG factors in their investment decision-making process.

In Hong Kong, the government has also already taken steps to drive ESG. In November, the SAR’s Financial Services Development Council published an ESG strategy for Hong Kong.

The strategy includes recommendations for the government to encourage public funds’ support for ESG integration, the Hong Kong Monetary Authority to scale up ESG requirements for external investment managers and the Securities and Futures Commission to provide more guidance on ESG thematic investment products.

Part of the Mark Allen Group.