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Hugh Wheelan: what’s behind the explosion in responsible investment, and what’s in front of it?

Hugh Wheelan: what’s behind the explosion in responsible investment, and what’s in front of it?

The sector has grown massively: what happened, why, and will it last?

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The RI Europe 2018 conference starts tomorrow (June 5). Thinking about how to ‘open’ the conference as its Chair is always a moment for me to reflect on where I think responsible investment is at. And I believe we are at a hugely exciting, interesting, significant, and potentially problematic juncture. Clear enough?
It’s hard not to be overwhelmed (both physically and emotionally) by the amount of interest now in responsible investment. It has exploded. As we pass 700 attendees at RI Europe – with many new faces – I think back to the number of panels I sat on at the fag end of investment conferences (with many of you…) where the speakers on the podium regularly outnumbered the audience! No longer. We are mainstream now, apparently. Or at least, as journalist peers tell me, we have become ‘fashionable’. There’s nothing like being damned with faint praise….
These days, the editorial team at RI is called by lots of public relations professionals (some of whom we haven’t heard from in years) eager to vaunt the ESG credentials of their fund manager clients; many of whom have been “doing responsible investment for decades”. I regularly hear the line at conferences now that ‘sustainability goes hand-in-hand with investment’. Who knew? Well-honed cynicism (20+ years of journalism) rears its head…. “After the war ‘everyone’ is a member of the resistance,” as they say in France.
What does it all mean? Why and how has it happened?
It’s not just me. Asset managers themselves are trying to work it out.
They, after all, are the ones being called on to justify their ESG integration – as much in the public sphere these days, as by their clients (where I would argue that there is still a dearth of real pressure). But let’s stay positive.

After some serious data crunching, managers now regularly recognise that ESG research is a driver of performance and risk control if done seriously by investors over meaningful timeframes. I was reminded of an interesting paper put out late last year by Nordea’s mainstream equity research team that worked through the data on how strong ESG performance in companies contributes to risk mitigation, and is also an indicator of strong operational and share price performance. In addition, the quants point out that ESG ratings are, surprisingly, uncorrelated with the factors they study, which could make them an interesting addition to factor-based and smart beta investment strategies. There are many such investment papers now. As I’ve noted before, similar data crunching is throwing up interesting nuances in the value proposition for ESG integration into bond investing. Materiality in investment is complicated, both financially and sustainably. It needs much more relevant data and research, which is now being financed. That’s exciting.
However, outside of the growing body of empirical evidence, we still have a ‘definition’ problem. A short, interesting paper was recently published called Lost in translation – In search of authenticity in ESG integration by Ulrika Hasselgren, Head of Sustainability & Impact at Danske Bank, Bonnie Saynay, Global Head of Responsible Investment at Invesco, and Dr. Henning Stein, Global Head of Thought Leadership at Invesco and Fellow at University of Cambridge Judge Business School. It makes excellent points about the problem of overlap in reporting and other initiatives. It also encourages a “sincere search for authenticity in ESG integration and call for clarity in the approaches, strategies and methods used by investors and asset managers in the diverse space of responsible

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