Will McIntosh Whyte, multi-asset investor at Rathbones, says there is a profound difference between a portfolio run with environmental social and governance credentials in mind and one that is run with sustainability as the focus.
In his view, ESG is about “risk management” and by excluding businesses that do significant social harm or are badly run, he believes investors will achieve better outcomes.
He says sustainable investing contains all of those elements of ESG, but additionally is about investing in businesses that may also help create solutions to the challenges facing the world.
He adds: “ESG investing is about excluding companies that do harm, while sustainable investing is about rewarding those companies that do good.”
Kristina Church, head of sustainable solutions at Lombard Odier, says that ESG investing is very much centred on the preferences of the client, and the adviser’s role is to understand those preferences.
When it comes to sustainable investing, she applies three criteria: “On net zero, we would ask: 'does a company have a target to achieve that, and does it have a medium-term target to reduce its emissions?' And then one asks: 'well, if it achieves those targets, does it still have a business? How is its business plan impacted?'”
Andrzej Pioch, multi-asset investor at Legal & General Investment Management, sees the difference as: “ESG risk is predominantly about the areas a company operates in, while sustainable investment risk is about looking at how a business operates, in whatever sector.”
Chris Hiorns, head of multi-asset strategies at EdenTree Investment Management, says he views sustainable investing as being “thematic” in nature, as a number of specialist funds have been created that enable investors to gain exposure to specific trends in the market, while ESG is the overarching name for different investment styles and priorities that focus on the wider question of how money is invested.
Craig Mackenzie, head of strategic asset allocation at Aberdeen Standard Investments, says his climate-focused multi-asset strategy presently has 60 per cent of its capital allocated to equities, which in a traditional multi-asset strategy would be considered suitable only for clients with the highest tolerance for risk, and a 15 per cent allocation to bonds.
He says finding fixed income investments that are sustainable and an attractive investment tends to be more difficult, and he has invested in infrastructure assets as an alternative to equities.
Among the funds he owns to gain exposure to infrastructure assets is Greencoat.
Advisers searching for appropriate multi-asset sustainable investment strategies for clients are faced with the problem of what to do about greenwashing, that is, the practice of businesses and providers adopting the language of sustainability, without really changing behaviour.
McIntosh Whyte says: “You have to consider, in the first place, the pedigree of the firm and of the teams managing the money – have they been around for a long time or are they recent converts to the potential of sustainable investing?