Clients are aware of the challenges environmental, social and governance portfolios have faced this year, but this is an opportunity to address other ESG concepts such as integration and transition, says Paris Jordan.
The multi-asset analyst at Waverton Investment Management says recent market volatility has not waned her clients' enthusiasm for ESG, but it has meant clients have been asking for more diversified portfolios.
This has provided an opportunity to address more impact-focused strategies.
In a Q&A with FTAdviser In Focus, Jordan explains how Waverton diversifies a traditionally growth-focused ESG portfolio and why she agrees with the inclusion of non-financial metrics in the advice process.
FTA: What is your view on the state of the ESG market?
PJ: The ESG market continues to evolve, and with anything that is still fairly immature there can be rapid growth before consolidation.
We have seen this across the ESG approaches, frameworks and ratings agencies. This can create confusion for investors in the short term but the opportunity for investment over the longer term is abundant.
FTA: Financial markets are jittery, the cost of living is rising, what effect has that had on your clients’ enthusiasm for ESG investing?
PJ: We have actually seen this challenging environment push the conversation around ESG forward. The drivers behind client enthusiasm have not waned in this challenging marketplace but certainly the concerns around investing have risen.
One consequence of this is the desire for more diversified ESG portfolios, rather than traditional negative screening or sustainability approaches which can result in concentrated outcomes.
Clients are aware that sustainability focused portfolios have been challenged this year and they are asking why.
This has provided an exciting opportunity for other approaches – including ESG integration and transition – to be discussed, and even implemented.
FTA: How do you diversify in ESG exposure given most stocks are growth stocks by nature?
PJ: These days it is much easier to diversify ESG exposure and there are now plenty of exciting opportunities across all areas of the style spectrum.
The proliferation of engagement, transition and sustainable value funds has exploded in the short term and we expect this to continue.
Equally, this has brought the discussion away from purer, solution-only ESG stocks, and brought more focus to transitioning companies as we try and meet net-zero goals.
For example, to meet a number of our goals, we are going to need a huge amount of commodities. Consequently, greener commodity funds or climate-change-focused opportunities are now available.
At Waverton, our approach focuses on ESG materiality and improving businesses, consequently we are able to avoid being shoehorned into one particular style.
FTA: There is still a perceived knowledge gap among advisers on ESG. What would help advisers advise on ESG?