ESG Investing  

Assessing the ESG risks for a pension client

This article is part of
Guide to ESG and pension investing

Listed equity markets have displayed the same characteristic for most of the period since March 2020, with ESG funds generally beating non-ESG equity funds in that period. 

If the changes that have occurred as a result of the pandemic were to become permanent, this would affect the returns of non-ESG portfolios. 

French adds that another way to understand if the firm is truly committed to ESG principles is to discover if they have signed up to the UN Sustainable Development Goals, as a basic and initial indicator of a product provider’s intentions. 

Minesh Patel, an adviser at EA Financial Solutions in London says the key may be to look at the actual underlying holdings in a portfolio that purports to be ESG, rather than just select a portfolio which has the words ESG in the title.

He adds that he prefers to look at firms which have an established track record in the area of ESG investing to those which are relative newcomers to the market. 

Meg Brown, executive director for marketing and business development at ESG specialist investment firm, Impax, says the firms that are doing ESG properly are those also able to explain and demonstrate this when they come to report to clients about the holdings in the fund.  

She says: “Funds which invest in environmental technologies or claim to have a net zero carbon impact should be able to clearly demonstrate it through their portfolio holdings and impact reporting.

"We started reporting quantified impact metrics seven years ago. Judging from the positive feedback we have received, clients are finding it helpful to understand the link between our investments in companies delivering environmental products and services and the environmental outcome of their business activities.”

Brown adds: “Delivering meaningful impact reporting is a complex process that requires specialist expertise to collect the data, then scrutinise it and understand it.

"The key to reporting impact metrics is to present the data in a way that is meaningful and accessible to investors but, most importantly, directly aligns with their principles.

"Impact investors want to make a difference and they will have ideas unique to their own experiences about where their money should go and what they want it to achieve, in terms of real, tangible change.

"If a client is concerned about the climate crisis and wants to ensure that their investment is working towards zero carbon emission goals, then a meaningful metric would need to show how their money has directly helped to avoid carbon emissions versus the current baseline economy.”