ESG Is Still A Work In Progress, Wealth Managers Say

Tom Burroughes

28 May 2019

Environmental, social and governance-driven ways to invest are all the rage. But this is still a relatively young field. There is a lot of work to be done in providing the data and measures of results to bring it fully into the mainstream, practitioners say.

As chronicled by this news service over the past few weeks, ESG is a hot wealth management topic, and some of the biggest firms, such as BNP Paribas and UBS, stress their ESG credentials. (See an editorial analysis here.)

The field is very much a case of work in progress.

“ESG contributes to a sustainable economy and we think that ESG can be a source of Alpha,” Sisi Liu, ESG specialist at , said.

“Education is important. Sustainable investment isn’t one thing. There are different approaches, there are different things that are in or out, some strategies are more or less exclusionary, some target particular positive outcomes, some just try to avoid the risks, so there is a broader education needed about what this market is,” she continued.

Mainstream yet?
Whether ESG goes mainstream will hinge around public policy, Maier said, citing the example of the European Union.

“The EU Sustainable Finance Action Plan outlined very specific measures around disclosure by companies and investors, clarification of fiduciary duty and how that relates to incorporating sustainability factors in the investment process, as well as the role of the supervisory bodies of financial institutions and credit rating agencies and how they should incorporate sustainability into their ratings,” she said.

“As a market, we are reflecting those broader ESG risks rather than the more narrow financial metrics. That is something we already see happening. The framework is evolving from a regulators’ perspective. In terms of more specific sustainable products, the EU put out a draft taxonomy for consultation on that, which had a very narrow green focus rather than a broad sustainability focus, but what goes in to that taxonomy and what doesn’t is one way of trying to define the market better,” she said.

The noise level around ESG is changing greatly, Nuveen, a firm with more than $20 billion of ESG investments, told this publication. (Nuveen is the asset management arm of TIAA, the investment group.)

“There is a marked difference in the conversation over the years. The level of interest it’s receiving at large firms is having a trickle-down effect. We’ve seen a commitment to bring this specifically targets companies that make a positive impact on society, while also delivering market rate returns. Consequently, the more integrated perspective of impact investing may capture additional returns for some wealth management clients,” Pickstone said.