EDITION
  • English
  • 中文
  • Bahasa
  • eCommerce
Tuesday, January 31, 2023
uLearnMoney Subscription Events
No Result
View All Result
Money Compass

EDITIONS:

Media and partner organizations:

cmc bmc ulearnmoney mylife mcm
  • HOME
  • NEWS
    • Global Market News
    • Local Market News
    • Corporate News
    • PLC News
  • SPECIAL FEATURE
  • COMPASS
    • Financial
    • Investment
    • Start Up
    • Capital
    • Infographics & Quotes
  • MONEY TUBE
  • LIFESTYLE
  • PR NEWSWIRE
Subscription Newsletter
Money Compass
  • HOME
  • NEWS
    • Global Market News
    • Local Market News
    • Corporate News
    • PLC News
  • SPECIAL FEATURE
  • COMPASS
    • Financial
    • Investment
    • Start Up
    • Capital
    • Infographics & Quotes
  • MONEY TUBE
  • LIFESTYLE
  • PR NEWSWIRE
No Result
View All Result
中文 Bahasa eCommerce
Money Compass

Why Sustainable Investors May Rue Being Too Passive

by moneycompass
September 15, 2022
in Investment Compass
sustainable investors

Source: jcomp via freepik

Share on FacebookShare on WhatsApp

Passive sustainable funds are growing strongly. But sustainable investors are at risk of a mismatch between what they expect and the reality of what they receive.

Growing social and environmental pressures are reshaping economies and industries before our very eyes.

This creates both risks and opportunities for investors whose portfolios need to reflect the changing world we live in.

Against this challenging backdrop, a forward-looking view of our fast-evolving world, rather than relying on past success drivers, will prove critical.

Yet the growth of passive funds over recent years is unlikely to align with this focus.   

Passives now account for over one-quarter of global investments in sustainable funds. And while their momentum has clearly demonstrated the demand for low-cost, easy access to global markets, sustainable investors in passive funds risk a mismatch between what they expect and the reality of what they receive.

sustainable investors

 

For when it comes to traditional investment criteria, views of “large cap” or “high yield” are relatively consistent, meaning sustainable investors in passive strategies focusing on those characteristics have a good idea of the sorts of stocks those funds will hold.

But, sustainable investment is very different. There are stark inconsistencies between the company scores determined by different ESG rating firms, many of which are used to populate the indices of numerous passive ESG products.

This is clear even amongst the most widely used and well-known scoring systems for company ESG measurement. Passive ESG strategies are, therefore, only as valuable as the ratings on which they are based, which, as our research demonstrates, vary considerably. Furthermore, many ratings are backwards-looking and usually fail to predict controversies.

sustainable investors

 

This is not surprising. For one thing, ESG analysis encompasses a huge range of topics, and the importance attached to each can vary significantly. More importantly, quantitative analysis alone cannot capture sustainability performance alone, underpinning the importance of an active investment approach.

Identifying a company’s ESG characteristics requires fundamental, bottom-up, forward-looking analysis, where views are unavoidably going to differ across firms.

For active managers, this creates opportunity. Active managers, by their very nature, will have a vested interest in the companies in which they invest: sustainable businesses underpin sustainable returns, so helping businesses become more sustainable is likely to benefit their overall portfolio and the returns for clients.

Their extensive insight and knowledge into companies and industries are critical to meaningful and thoughtful discussions to help drive change, tackle challenges and ensure company management teams are held to account to make the transition.

There is no simple, single answer to achieving a sustainable future. It will require significant time and investment in helping local and global corporates make the change.

So, how can we accelerate this?

Rather than using screens to exclude vast swathes of the benchmark, which we have shown to be based on significantly differing data, the key approach is to engage and influence as thoughtfully and comprehensively as possible. This ethos has been long established at Schroders and is an inseparable part of our investment process.

Most of our fund managers and analysts now have targets for high-quality engagements. From this year, these are assessed and form part of fund manager appraisals, and the results, therefore, affect their compensation. Over time, we expect the breadth and intensity of our engagements to continue to grow.

But engagement by itself is not enough. Measurement is critical to success. Any fund manager making a decision without first assessing the costs or benefits each company has for the environment and society is, to put it bluntly, flying blind.

The results of our latest Institutional Investor Study clearly show that clients are also keen to understand. We must strive to show how different company behaviours on issues such as taxation, healthcare and innovation can deliver social costs or benefits.

We must also offer a granular view of carbon emissions on a company-by-company basis; not just focus on the emissions accrued directly or through the firm’s value chain, but also consider the knock-on emissions created and rarely accounted for.

There are other factors and nuances to consider in this debate. While it is true that large, passive managers have increased the sizes of their stewardship teams, a scaling up of thoughtful, critical analysis and diligence is far more difficult to replicate.

Clients will make their own assessments. By asking each portfolio manager for clear examples of effective engagement and a clear view of their portfolios’ sustainability profile, they can make a clear-sighted judgement. 

Over the long term, the importance of an active approach to sustainable investment will only become increasingly obvious.

 

Written by: Rory Bateman, Co-Head of Investment and Head of Equities, Schroders

 

Join our Telegram group for the latest updates!

 

Read more: Why Recession Looms For The Developed World

 

Tags: investmentSchrodersSustainable Investment
ShareSendShareSendTweetShare
Previous Post

Humanforce Enhances Platform with New Payroll Solution

Next Post

Spirent “Send Us Your Device” Service Opens Up New Routes For Wi-Fi Equipment Testing

Related Posts

Climate leaders that are already reducing their emissions should prove lower-risk investments as the pace of regulation picks up
Investment Compass

Why Climate Leaders Could Offer Investors Lower Risks

26 Aug 2022
Schroders' Portfolio Manager Robin Parbrook, assesses the opportunities in Asian equities after sharp stock market falls.
Investment Compass

Asian Equities: Where To Find Its Value After A Turbulent Time

18 Aug 2022
The war between Russia and Ukraine is already having a significant effect on inflation and activity in the world economy as commodity prices have soared and supply chains have been disrupted.
Investment Compass

World Economy: What Might a New World Order Entail for Your Investment?

25 Jul 2022

Discussion about this post

MOST POPULAR

  • The 12th International Conference on Financial Crime and Terrorism Financing (IFCTF) 2022 saw Bank Negara Malaysia's (BNM) governor talk about the ringgit's status.

    Malaysian ringgit ranked as cheapest currency in region

    0 shares
    Share 0 Tweet 0
  • Top 100 SMEs Defy Economic Headwinds to Post Triple-Digit Growth

    0 shares
    Share 0 Tweet 0
  • FORTUNE RELEASES ANNUAL FORTUNE GLOBAL 500 LIST

    0 shares
    Share 0 Tweet 0
  • How to Start Trading on the Malaysian Stock Market

    5 shares
    Share 5 Tweet 0
  • Panasonic Corporation Emphasises Holistic Well-Being in Its Products; Announces New Brand Action Tagline “Create Today. Enrich Tomorrow.”

    0 shares
    Share 0 Tweet 0

MEMBERSHIP SUBSCRIPTION

Subscribe Now

Sign Up for Our Free Newsletters

Stay up-to-date with the latest personal wealth-related articles, breaking financial market news, and more.

Follow us on Social Media

News
Special Feature
Compass
Money Tube
Smart Lifestyle
Corporate Profile
Advertise
Subscriptions
Career
Contact Us
eLearning
Events
Privacy Policy
Terms of Use
Strategic Partners

Copyright © . Money Compass. All Rights Reserved.

Design and Development by Ant Internet Sdn Bhd

No Result
View All Result
  • HOME
  • NEWS
    • Global Market News
    • Local Market News
    • Corporate News
    • PLC News
  • SPECIAL FEATURE
  • COMPASS
    • Financial
    • Investment
    • Start Up
    • Capital
    • Infographics & Quotes
  • MONEY TUBE
  • LIFESTYLE
  • PR NEWSWIRE

© 2020 Money Compass

Career

SUBSCRIBE FREE NEWSLETTER