This year has been all about ESG. Media outlets and players in the financial world have been constantly talking about responsible investing and the different ways to take ESG into account in portfolios.
All the talk is good, but what we’re still lacking is a level playing field, where comparing data and different methods is easier than it is now.
This is where you, the investor, come into play. Do you really know how to swim in the ocean of ESG issues? Which questions are the dolphins, whales or sharks? How deep is the water and where are the currents? How do you navigate at open sea?
Ask the right questions
The time for big talk is gone, and now we must truly work on the ESG issues. Often it can be hard to find out if what has been said is what has actually been done. Asking the right – and the tough – questions from portfolio managers is a good way to make sure that ESG isn’t just an embellishment on top investments.
Challenge your portfolio manager about the strategy he or she has and ask questions about its implementation. What kind of ESG factors are considered? Where does the ESG data come from, and how often is it reviewed? How are different issues evaluated and how are they weighted in different industries? Are exclusion criteria ad hoc or thoroughly motivated?
Ask questions from yourself, too: How do my goals and objectives reflect on the investment strategy? What are my possibilities to achieve them and how much effort can I put in them? Is a total exclusion of a specific industry the right way to go, or are there better policies that work? For sure, greenwashing isn’t viable in the long run.
One of the biggest questions in ESG is how to compare the incomparable. Sizing up vastly different industries and different kinds of companies is a tough challenge. There is no one-size-fits-all solution for this, but the more transparency and reporting we investors demand, the better the companies need to respond.
The demand for openness doesn’t only stem from us investors and portfolio managers. The public are getting increasingly aware of responsible investing and want to know more about how their pensions have been invested. The more you know, the better you understand how ESG factors are taken into account – and the better you can communicate it to the public.
We at Evli want to be open and transparent. When we can measure ESG issues, we can make the right investment choices and follow up them; but for that, we need comprehensive, high-quality data. Our analysis of responsibility factors means active analysis of investments from the perspective of ESG factors and calculating ESG ratings for funds. We publish the ratings regularly to all our clients.
What will ESG look like in the future?
What we investors do now will shape ESG in years to come. Will our demands for openness and reporting be enough? The amount of data is increasing rapidly and the challenge lies in processing and analysing it. The standards for reporting will evolve and be also influenced by legislation. The latter could lead to peculiar information and make comparisons between companies and industries even more challenging.
Responsible investing is a moving target. How we view ESG now may be completely different from the ESG of the future. How will the increasing amounts of data, artificial intelligence or block chain technology change the game? The sea of ESG issues sure becomes deeper and vaster the more information we get.
It’s difficult to say how ESG will evolve. However, we at Evli are certain that ESG will be an integral part of all investing, and perhaps in 10 years, we won’t even talk about ESG investing anymore. Asking the right questions now paves the way to that direction.
Text: Outi Helenius
Outi Helenius, MSc (Econ), Head of Sustainability at Evli. Outi is leading the development of Evli Group’s responsibility program and operations, and is also in charge for Evli Fund Management's responsible investing. Outi has been with Evli since 2015, and is an EFFAS’ Certified ESG Analyst. During 2017, she completed Diploma in Responsible Business and Environmental Management at Aalto University. Prior to Evli, Outi has worked at KONE’s Investor Relations and SEB’s Equity Research.