Fund manager engagement is crucial for sustainable investing

This article is part of
Guide to sustainable multi-asset investing

She adds: “This is becoming increasingly important with the introduction of [the EU Sustainable Finance Disclosure Regulation], which requires products to be divided into those that do not have any environmental, social or sustainable characteristics (Article 6), light green products that have environmental, social or sustainable characteristics (Article 8) and products that must generally invest in only ‘sustainable investments’ and therefore have a sustainable investment strategy (Article 9).

"If a fund manager wants their fund to be classified as an Article 9 product, they will probably need to do a lot of reviewing and reporting and possibly engaging with the investee companies.”

James Sullivan, head of partnerships at Tyndall, says engagement with companies should always be part of what an investment manager does, and that quite often the information gleaned from a company that has run into an issue can reveal the future prospects for a business, either in a positive or negative way, and provide an advantage for the fund manager.

Simon Holmes, multi-asset investor at BMO Global Asset Management, is another who takes the view that engagement can deliver positive outcomes from both a financial perspective and in terms of ensuring compliance with sustainable investing principles.

He says: “Engagement is, to a large extent, about helping companies to think long term, both in terms of commercial activity and in terms of their impact on society. The reality is the companies that only think about those things for the short term will not be successful.” 

Craig Mackenzie, head of strategic asset allocation at Aberdeen Standard Investments, says engagement is also about ensuring that companies that are sustainable in terms of how they impact society are run properly and with shareholder interests in mind. 

He cites Tesla as an example, a business in which he is invested. He says the company’s chief executive, Elon Musk, “is well known for his maverick approach, including to corporate governance, which is the G in ESG, and that is something we engage on. And more broadly, the area of the economy Tesla operates in – electric vehicles – has been full of new entrants who barely have a business plan and are just trying to ride the hype. Looking at governance is part of the way we ensure we are not invested in those".

Mackenzie adds: "I run a multi-asset sustainable fund, but on issues around engagement I can partner with other managers within the firm to engage with companies, giving us bigger scale."