Why now is the time for ESG investing

-- | 02/12/2020

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Holly Black: Welcome to the Morningstar Digital Investment Conference. I'm Holly Black. With me is Michael Jantzi. He is the founder of Sustainalytics. Hello.

Michael Jantzi: Hello. How are you?

Black: I'm good. Good to have you here. And we're talking ESG and sustainable investing. This is a huge topic. It feels like it's really picking up traction in the investment world. Why do you think we're at an inflection point for ESG?

Jantzi: Well, I think it's a number of different reasons and maybe the first you can sum up in just one word, and that's growth. We're seeing tremendous growth in the interest in sustainable investing. I mean, the growth has largely been driven over the last decade or so by institutional investors, so large asset owners and the investment managers that serve them. And that's really global. There's really not a developed market in the world where this isn't gaining traction, and it's really driven by the institutional investors saying, you know, environmental, social issues are not just about values. These are real risks and opportunities that need to be looked at alongside the traditional financial analysis that we've always done in the investment side to really position us for good outcomes on behalf of our clients. We're talking about a sustainable finance ecosystem because companies are also embracing sustainability in a very meaningful way and integrating sustainability metrics into their strategic planning and business planning and raising capital through sustainable investment tools and so on. So, we're at an inflection point in part because you have investors and companies looking at sustainability in a new way.

Black: But there are—a lot of people still are cautious about ESG investing. What do you think some of the biggest challenges for this space are?

Jantzi: Well, I do think there has historically been caution around this space, because people believe that if you're mixing an examination of environmental and social issues into a financial decision-making, for some reason that's going to hamper or lead to a negative impact on returns. That's been flipped on its head now because as I said the growth in this space has really been about integrating environmental, social issues into a process to make smarter decisions, again, to position you better down the road. But we need to do a better job in corporate disclosure on environmental and social issues and we need to bring some formality and structure to that in the same way that we have a certain level of expectations on financial reporting. And that has been a challenge. There's been too many different frameworks out there and it's been voluntary. And I'm encouraged now, because that challenge seems to be moving in the right direction. We're now seeing accounting bodies like IFRS and others that are stepping into the fray and starting to say, well, maybe we have a role here to bring some structured formality to ESG disclosure at the corporate level. And so, we're now looking at what different stakeholders think, the roles of these accounting bodies and other formal body should be. So, I'm quite encouraged by that.

Black: And I feel that as investors try and navigate this space and it is changing constantly, this is where the financial adviser comes in. Do you think this is a big opportunity for IFAs?

Jantzi: I think it's a tremendous opportunity because what the research shows is that clients are embracing sustainable investing in ways that they haven't before, and they're looking at sustainable investing from a number of different perspectives. One of my favourite studies in this space was done by Schroders. They do it every year. It's a global survey. And I mean, it's just one example that highlights the fact that whether investors are looking for a sustainable investing alternative because they believe it informs an investment decision and again, will help them achieve those financial outcomes or better position them for those good financial outcomes over time, whether they want to have a positive environmental or social impact with their investing or if they simply want to align their investing with their own values. There are a number of very powerful drivers now that are leading individuals to want to invest in this way, and we're starting to see significant fund flows in Europe, in the United States and other markets around the world that reflect this this trend. And the good news for investors is, well, their clients are looking to them to help them solve their investment goals and help them reach their objectives. And part of those objectives now are around sustainable investing. So, it's a wonderful opportunity for advisers to step up to the plate and do that.

Black: Michael, thank you so much for your time. For Morningstar, I'm Holly Black.

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