With sustainable investment assets now valued at $35 trillion globally, demand for funds with environmental, social and governance (ESG) credentials shows no signs of slowing down.
In fact, the Global Sustainable Investment Review 2020, released in July by the Global Sustainable Investment Alliance, found that 36 per cent of all professionally managed assets worldwide are now classed as sustainable.
Ireland is following this wider global trend, according to Graham Fox, head of distribution at Amundi Ireland, who has seen a marked increase in sustainable investment over the past year.
“ESG investing, or responsible investment is now the biggest trend we are seeing for pension savers,” Fox said.
“In the past three years alone, we’ve seen over $100 billion go into ESG funds worldwide and, here in Ireland, interest in this area has really picked up in the past 12 months.
“We’re starting to see good flows from pension savers into this space with many looking to put, on average, 15 to 20 per cent of their pension portfolio towards something they regard as responsible.”
This trend is fuelled by a growing awareness of the need to curb the severe impact of climate change on the planet, but also by rising interest among investors in responsible companies with ethically sound business practices.
“ESG is about investing in companies that are trying to do right by both people and planet, so that they can have a positive impact on the world we live in,” Fox said.
“ESG itself stands for ‘environment, social and governance’, but I tend to use the term ‘responsible investing’, because I think it means more to people.”
Beyond environmental impact, social and governance factors are equally important in the responsible investing realm.
“People often think of environmental impacts first, because this is something we have all become very aware of, particularly now with the 2021 United Nations Climate Change Conference under way in Glasgow and the target to limit temperature warming to below 1.5 degrees Celsius,” Fox said.
“At Amundi, we look at companies from all three angles — environmental, social and governance — so we can gauge how they rank overall as responsible businesses.
“We are entrusted to manage hard-earned pension savings from people all around the world and we take this extremely seriously.
“We believe that, if we invest in companies that are both well-run and responsible, they can generate a return for our investors while also doing right by people and planet. This balance is really important.”
What is a responsible company?
Working out who the responsible companies are and how they operate across the three ESG categories — environmental, social and governance — can encompass a multitude of factors, Fox explains.
“If we’re looking at a manufacturing company from an environmental perspective, for example. We want to know how much sustainable energy they use at each of their plants; what sort of carbon footprint they have and if they have invested in electric vehicles for the transportation of goods.
“On the social side, we might look at how they treat their employees; how strong they are on equality and if there is good diversity and gender balance on their senior management teams. ”
Governance, meanwhile, is about financial accountability and transparency. “Here, we would look for a strong internal audit process and external audit controls. It’s really about ensuring that the company is ethically sound and financially well-managed,” Fox said.
Responsible investing: where to start
For those interested in finding out more about ESG investing, but unsure where to start, Fox has this advice.
“The first thing I would say is ask questions. Sit down with your financial broker and find out about the different options available to you,” he said.
“Financial brokers can be very good at understanding the different elements of ESG funds. They should be able to give you advice on what responsible investments are best suited to your specific needs.”
This is particularly important to consider when we think about ‘greenwashing’, which is where a company might promote a fund as having stronger responsible investing credentials than it actually has.
“Greenwashing has become much less of a risk as the market for ESG investing has matured and new regulations have come into play, and this is really good news for investors, “ Fox said.
“Even up to 12 or 18 months ago, pension savers were asking their financial brokers to explain what ESG meant or saying: ‘I’m hearing a lot about greenwashing and green funds that aren’t really green — what do I need to know?’
“A huge amount of work has since been done in the Irish market to help financial advisers understand the ESG investment landscape, including a new Responsible Investment Adviser Course, provided by Skillnet Ireland with support from ESG Ireland. However, the key regulatory development this year for financial brokers has been the Sustainable Financial Disclosure Regulations.”
Sustainable Financial Disclosure Regulations
Introduced in March by the European Commission, the Sustainable Finance Disclosure Regulation (SFDR) imposed mandatory ESG disclosure obligations for asset managers and other participants in the financial markets.
“SFDR is really important because it has introduced a set of ESG guidelines for all asset managers to help classify their ESG funds. Financial advisers and brokers now have an independent classification system, effectively limiting the risk of greenwashing for investors,” Fox said.
The SFDR classification system is divided by ‘gradients of green’ across Articles 6, 8 and 9.
“Article 6 funds are considered ‘light touch’. These are funds which have a light touch ESG focus and generally exclude problematic industries, such as coal or ammunition,” Fox explained.
“Article 8 funds have more integration with ESG companies and actively promote the idea of ESG. Then you have Article 9, which we believe is the gold standard in ESG investing. At Amundi, we have two funds available in the Irish market to pension savers in the Article 9 category – Amundi Multi Asset Sustainable Future and Amundi Global Ecology ESG Funds.
“There is a lot more regulation to come down the line in this area, as it continues to grow and evolve, but, with the introduction of the SFDR, investors should already have much more reassurance.”
Amundi at a glance
The largest European asset manager
Ranks among the top 10 global players
100 million clients
In 35 countries
A subsidiary of the Crédit Agricole group and listed on the Paris stock exchange
Currently manages more than €1.8 trillion of assets
Amundi Ireland at a Glance
Established in 1998
One of Amundi’s six international investment hubs and the group’s global hub for equities
100 front office investment professionals from portfolio managers to analysts to researchers
Amundi Group co-hub with Paris of Amundi technology business line
Launched Irish retail division in 2019
Authorised as a super management company in 2020
Source: IPE “Top 500 Asset Managers” published in June 2021, based on assets under management as at December 31, 2020
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