RI BLOG: ESG goes big at Milken conference: Erika Karp, Global Head of Sector Research, UBS

Sustainable finance was all over the discussion at the 3,000 strong Milken conference in Los Angeles last week.

Investors are always looking for an edge. So here’s a well kept secret: ESG (Environmental, Social and Governance) analysis is playing an increasingly important role in investors’ decision-making processes, as was discussed in depth last week at a number of US investment forums including, and most visibly, the Milken Institute Global Conference. But Sustainable Investing is not yet top of mind for most mainstream analysts and investors. And companies themselves don’t yet seem to be getting that many direct questions on ESG factors. Perhaps that in itself is why there is a great opportunity to gain an information advantage by understanding this emerging investment discipline. At the annual Global Conference held in Los Angeles last week, I had the opportunity to witness a staggering display of financiers, entrepreneurs, corporate executives, policymakers, economists, philanthropists, scientists, academics, and asset owners all intent upon identifying and implementing innovative ideas towards broad-based prosperity. There was a seriously heightened collective consciousness regarding both the obvious and the more intangible aspects of sustainability. As a panelist for the “Impact Investing” discussion, I was heartened to be part of an intense discussion on the extent to which ESG factors must be integrated into mainstream equity analysis to fully assess risk-adjusted returns and even enhance the predictive value of company research. Across asset classes and across the full breadth of investment styles and missions, sustainable innovation, infrastructure, power sources, healthcare and funding were alldiscussed. And all are possible and practical in the pursuit of enduring growth. In analyzing investment opportunities at Milken, 3,000 people spent three intense days searching for ideas and implementation strategies together. Some notable themes included: the role of political economy and the necessity for policy to better recognize the pace of technological change in order to facilitate innovation; the daunting challenges of unsustainable fiscal trajectories in the context of demographic and entitlement trends; and, the absolutely critical role of incentivization systems in global economic development. On the last item in particular, I applaud the Clean Tech panelists who offered their broad definition as “21st century industrial technology where innovation is injected into infrastructure” for a sustainable energy future. Over the past generations, the world has spent $100 trillion on the current oil and gas energy infrastructure; some “re-purposing” can certainly help meet global energy demands given the funding challenges ahead. Rather sensible! Finally I would note that, among the many high points of the conference, was an interview conducted by Michael Milken with Gary Becker, Nobel Laureate, Professor of Economics and Sociology at the University of Chicago. Becker highlighted the extent to which a great research program is amplified when one great research idea leads to another, and another, and another. To me, that’s the real genesis of sustainable investment: insight, innovation, economic growth and prosperity.
Erika Karp is Managing Director and Global Head of Sector Research at UBS in New York.