There may be threats and limitations to environmental, social and governance investing, thanks in part to the regulatory landscape and lack of clear analysis around it, but there are also plenty of opportunities for investors.
These come in a variety of forms, ranging from ways to invest to more choice available, thanks to emerging nuances in ESG.
Other opportunities include the ways in which an adviser’s role relating to clients can readjust to take into account new potential investments on the horizon.
One of the first things that advisers could discuss with their clients is the benefit of ‘double materiality’.
Double materiality – the double impact on financial and societal issues – holds great promise for ESG and people are becoming more aware of how a company’s actions can improve both the profit margin and the world in which it operates.
European regulators have come up with this measure as a way to help assess an investor’s need for greater information about ESG issues and whether such factors are financially material to a company’s success.
While the UK is behind in such regulatory thinking around sustainability in terms of both ESG and profitability, this is something that many fund managers are considering.
Masja Zandbergen-Albers, head of sustainable integration at Robeco, explains: “The use of the term ‘double materiality’ in regulation is making the industry need to think more about the real world impact they are having on the entire book of business.
“It also requires putting more effort into showing how this real world impact is being achieved.”
Thus, this concept is about honing an investor’s understanding of impact the of ESG, and sharpening fund managers’ analysis and perceptions of what a fund or company is doing, and what impact it can have.
Robeco also works intensively in the field of ESG integration. Such integration draws the presence of ESG into a wider portfolio, which is a portfolio not limited to responsible, ethical, impact or thematic investing but that includes an aspect of these.
ESG integration is expanding the possibilities for ESG to be present as part of a wider portfolio.
This is increasing the standing of ESG, especially ethical investing – which screens out harmful business – and thematic investing.
Because Zandbergen-Albers is very clear that such integration of ESG needs to be evidenced and measured, it makes ‘real’ the ESG element, and means it has scope to become a thing on its own for those investors who perhaps aren’t completely committed to it now.
Flexibility and holistic relationship
At the same time as growth in ESG integration and awareness of double materiality, there are more products to suit different investors.
Therefore, there is increasing recognition that ESG can be a flexible tool for doing good. It doesn’t have to be a blunt instrument that is restrictive, but can penetrate portfolios and the investment sphere from varying angles and approaches.