Responsible Investment 2020

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RESPONSIBLE INVESTMENT I N D E P E N D E N T P U B L I C A T I O N B Y 0 9/ 0 8 / 2 0 2 0 # 0 6 8 1 R A C O N T E U R . N E T £30 billion in assets under management. In June, it announced it was permanently excluding thermal coal mining and energy generation, tar sand, and arctic oil and gas from any of its investments. Not only that but the firm has also committed to reduce its carbon emissions by 50 per cent across its holdings by 2030. Mohammad Syed, head of asset man- agement at the bank, says he would love to transition faster and would do if sup- ply chains permitted. He also regards des- ignated ESG funds as sub-optimal. "I felt strongly that we should embed everything around ESG in the entire end-to-end invest- ment process and decision-making," he Pandemic crisis drives ESG to the fore A global pandemic, stock market crash and heightened awareness of social inequality and environmental damage have pushed responsible investing into the mainstream n Friday July 3, shares of Boo- hoo, a UK-based fashion brand, closed at 387.50 pence. Two days later, The Sunday Times published a report about poor working conditions in its sup- ply chain in Leicester. Come the following Wednesday, the share price had tanked to 224.50 pence and on Friday, Standard Life Aberdeen sold out £80 million worth of its shares. In a week, £2 billion was wiped off Boohoo's £5 billion valuation. Rarely in British business history has the expression "nominative determinism" been so apt. Now consider this: after decades on a northbound trajectory, the pay of FTSE 100 chief executives is declining. The latest figures available show it fell 13 per cent in 2018, although the top bosses are still paid 117 times more than the average member of staff. But the year before they were paid 133 times more, according to the research from the High Pay Centre and Chartered Insti - tute of Personnel and Development. Hold that thought as we turn to Bernard Looney, the new chief executive of BP; in February he announced that the oil major was going to become net zero on carbon by 2050 or sooner. "It is clear to me, and to our stakeholders, that for BP to play our part and serve our purpose, we have to change," he said. "We want to change; this is the right thing for the world and for BP." Whatever you might have thought in the past about so-called environmen - tal, social and governance (ESG) invest- ing, one thing must now be clear, it's not a fringe event. On the contrary, it's fast becoming the norm. And that's for the pretty obvious reason that if you're in business for the long term, you really shouldn't do anything that hampers your ability to make profits in the future, like pollute the atmosphere to the point life as we know it dies off. This makes ESG an altogether attractive proposition for investors who have con - tinued to pile their money into sustaina- ble-themed funds, even as the coronavirus crisis struck. According to Morningstar, $45.6 billion flowed into ESG funds in the first quarter of 2020, compared with global outflows of $384.7 billion from the broader fund landscape. At the end of March, the ESG stockpile stood at $841 billion, a decline of 12 per cent annually, but the wider fund universe was down 18 per cent on the back of the COVID-19 rout. It's a strong market indicator that things are changing for ESG. "The knock on ESG used to be was that it was a bit of bull-market luxury," says Russ Mould, investment direc - tor of online stockbroker AJ Bell. "I don't think it's going to work out that way going forwards. It's become a more integral thing in everybody's investment philosophy." This is especially true for millennials and those following them. It would be a mistake for providers of investment prod- ucts not to appreciate how ingrained it has become, Mould cautions. One provider that's seen the light is Coutts, the Queen's bank, which has some Marina Gerner Award-winning arts, philosophy and finance writer, contributing to The Economist's 1843, The Times Literar y Supplement and Standpoint. Alec Marsh Author and writer, editor-at-large of Spear's magazine, with bylines in The Guardian, Spectator and New Statesman. Jim McClelland Sustainable futurist, speaker and writer, specialising in the built environment, corporate social responsibility and ecosystem services. Joe McGrath Financial journalist and editorial director of Rhotic Media, with work published in Bloomberg, Financial Times, Dow Jones and Financial News. Nicholas Neveling Former editor of Real Deals magazine, which covers UK and Europe private equity. Rachael Revesz Freelance journalist and commissioning editor, specialising in finance and women's rights. says. "What I would love would be for peo- ple to stop talking about ESG; it's just the way they now operate." Veteran wealth manager Annamaria Koer- ling has seen a recent pivot from the E to the S and the G. "The outcome of COVID will be a general recognition that companies need to have more responsible business models and be more socially minded," says Koer- ling, a partner at Delfin Private Office, which advises on around $3 billion of assets. "My sense is that within five years we could be in a scenario where two thirds to 75 per cent of investors want ESG in some form." In addition, she notes a "convergence of investing for good and good investing". Which is to say investment professionals are increasingly recognising that to future- proof clients' investment portfolios they need constituent companies with resilient business models. Perhaps it's not surprising that ESG funds have outperformed non-ESG funds in recent years. A survey released in June by Morningstar of 745 sustainable funds in Europe showed 58 per cent did better than non-sustainable funds over three, five and ten years, and there was mark - edly higher survivability among sustain- able funds. It proves, according to the firm's Hortense Bioy, director of sustaina- bility research, that the idea of a so-called performance penalty with ESG is a myth. It's not the only myth that's been busted this year. Already in 2020 we've seen hun- dreds of billions wiped off global dividends; we've seen people in their millions stand in doorways and windows to applaud health- care workers; we have seen governments Distributed in Publishing manager Will Brookes Deputy editor Francesca Cassidy Head of production Justyna O'Connell Design Sara Gelfgren Kellie Jerrard Harry Lewis-Irlam Celina Lucey Colm McDermott Samuele Motta Jack Woolrich Managing editor Benjamin Chiou Associate editor Peter Archer Contributing editor Marina Gerner Published in association with Although this publication is funded through advertising and sponsorship, all editorial is without bias and sponsored features are clearly labelled. For an upcoming schedule, partnership inquiries or feedback, please call +44 (0)20 8616 7400 or e-mail info@raconteur.net. Raconteur is a leading publisher of special-interest content and research. Its pub- lications and articles cover a wide range of topics, including business, finance, sustainability, healthcare, lifestyle and technology. Raconteur special reports are published exclu- sively in The Times and The Sunday Times as well as online at raconteur.net. The information contained in this publication has been obtained from sources the Proprietors believe to be correct. However, no legal liability can be accepted for any errors. No part of this publication may be reproduced with- out the prior consent of the Publisher. © Raconteur Media /responsible-investment-2020 @raconteur /raconteur.net @raconteur_london I N F O G R A P H I C E S G S T A N D A R D S S I R R O N A L D C O H E N Interest in ESG investing has grown as funds have outperformed benchmarks Why a fossil fuel giant and electric car maker can have similar ESG ratings Impact investing pioneer explains why COVID-19 offers a crucial moment for change 03 04 07 raconteur.net Alec Marsh O Contributors COMPANIES NOT BEING OPEN ENOUGH ON CLIMATE CREDENTIAL S Investment professionals across the globe are largely dissatisfied with the climate-related disclosure of publicly-traded companies E S G Art director Joanna Bird Digital content executive Taryn Brickner Design director Tim Whitlock Within five years we could be in a scenario where two thirds to 75 per cent of investors want ESG in some form of all political stripes curb civil liberties and spend dizzying sums to fight COVID- 19 and its economic impact. We have also seen an altogether new consensus emerge on the need to tackle climate change and social inequality. So is 2020 a watershed moment for ESG? You bet. And it has only just started. Global Sustainable Investment Alliance 2019 Australasia Canada Europe Japan Very dissatisfied Somewhat dissatisfied Somewhat satisfied Neither satisfied nor dissatisfied UK US 23% 20% 14% 10% 10% 32% 38% 20% 40% 44% 40% 45% 29% 35% 21% 27% 40% 13% 10% 25% 25% 19% 10% 10% Ellen Sheng Writer with a focus on finance and fintech, and former reporter at Dow Jones/ The Wall Street Journal, with bylines in CNBC, Forbes, Quartz and others. The longest running private equity forum focused on bringing together fund managers, institutional investors and expert advisers to discuss ESG issues across alternative asset classes will return virtually on November 11- 12, 2020, co-hosted with PRI. Whilst ESG has grown due to increased demands from institutional investors, GPs are increasingly seeing how its implementation can add tangible value to their investments. Register at a crucial time for the opportunity to discuss the state of the industry with your peers and to be a part of a must-attend event for alternative asset professionals with an interest in ESG. privateequityinternational.com/rif Event partner

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