Excitement and energy surround ESG
It has been an exciting few years for those who work with environmental, social and governance (ESG) investing. We continue to see awareness and interest grow beyond simply investing to having a real impact on corporate initiatives and strategies.
Gaining global insight
Last December, I attended the 2019 Sustainable Investing Conference, which was held at the United Nations headquarters in New York City, and the crowd reached the room’s maximum capacity. Nearly 700 financial professionals, investment analysts, academics, scientists and government officials from around the world and across the U.S. came together for the day’s full schedule. Sitting in that room, I was energized by the feeling that we are in this together, united in a common goal.
My top takeaways for the future of ESG
Presentations and panels held throughout the day discussed the current market, trends, data and attitudes about sustainability and other ESG metrics. Below are some of the key discussion points from the day:
Many of my fellow ESG investing analysts are talking about the energy around the millennial population—the largest generation in the U.S. It’s true that adults in their 20s and 30s think differently about money and want to invest in companies that support their values. In the past, this generation has struggled to gain the attention of advisors due to lower expected wealth‡ over time. Yet, in the next 30 years, millennials stand to inherit $68 trillion‡ from their baby boomer parents and grandparents.
The millennial focus on ESG metrics, like sustainability, working conditions, equality and community involvement, will be critical for years to come. Financial institutions and investment professionals will need to prepare for continued interest in and high expectations for ESG investing.
But, while millennials will play a large role in the future of ESG, my experience has shown me that interest in values-based investing transcends age, gender and wealth. I’ve found that if a client can do good with their investment choices without impacting their financial goals, they are eager to shift to ESG.
ESG as a guide post, not a standalone tactic
For years, I researched and reviewed portfolio managers, investing opportunities and asset classes to find the right selection for our clients at UMB. Because of that experience, I am especially heartened to see ESG being elevated as a holistic investment approach, rather than a standalone tactic. The shift takes ESG investing from a nice-to-have secondary thought to a top-level expectation—screening assets, funds and companies with an ESG lens, and then making selections from the options that remain (a pool that continues to grow).
ESG screens can be part of an effective risk management strategy that helps investors navigate the economic impacts of climate change, measure a company’s human, political and financial risks, and ensures they support organizations that do good. Creating a full investment portfolio that helps you make an impact, manages risk and aligns with ESG metrics is something all investors can do today.
Intentional and measurable
A final takeaway from my experience at the conference is that as interest in ESG continues to grow, investment managers and companies need to be intentional. We need to be able to measure how our offerings fit into the ESG space, how they further specific end goals, and how they change over time. Currently, one of the ways we benchmark and measure ESG initiatives is by tying them to the UN’s sustainable development goals‡ (SDGs).
Todd Ahlsten, chief investment officer and portfolio manager at Parnassus, was on a panel at the conference answering questions from the attendees about how to look at and use ESG as an investment strategy. I appreciated the opportunity to see him speaking—not only to hear his perspective, but also to see one of UMB’s fund partners in action, as we work closely with Parnassus to offer ESG investments options to our clients.
In 2018, UMB launched our full portfolio of ESG options, from mutual funds to ETFs, with active and passive strategies, across all asset classes. And we won’t stop there. Morningstar recently reported on the record-breaking rise of sustainable portfolio funds in the U.S., which reached $20.6 billion in 2019‡—four times the amount from 2018. This momentum seems to be continuing in 2020, and I look forward to what the year will bring, with new insights from the market, the industry and the investors who are seeking to do good with their money.