More and more clients are asking about ESG – so what is it?
7th September 2021
In the last 18 months, more and more of RobMac’s clients have been asking about sustainable and responsible investing and in particular Environmental, Social and Governance (ESG) which is getting a lot of publicity. So, we’d thought we’d ask a former RobMac intern for his views on this trend.
RobMac asked Finlay Taylor about his journey to working for an ESG consultancy.
“I was lucky enough to join RobMac as a summer intern in 2017. This then gave me a platform to join MJ Hudson, an asset management consultancy who provide a range of integrated services to fund managers and investors.
I started in a compliance-focused role and spent 4 years specialising in the closed ended fund management sector working with emerging PE and VC managers to help grow their businesses.
During this time, I noticed that sustainability was increasingly becoming a theme across the alternatives market and that fund managers were being probed by their investors about their sustainability outcomes. The theme of sustainability transcends the workplace however. If I wasn’t talking about it at work, I was reading about it in the news, chatting to friends, watching Netflix shows etc. It’s everywhere you look, increasingly so in the lives of millennials and younger.
“ESG is the common framework used to evaluate companies on how well they manage sustainability related themes. The three metrics can be defined as the following:
Relates to a company’s impact on the physical environment, including climate change, biodiversity, natural resources, carbon emissions, air and water pollution .
Relates to the impact on colleagues and communities, including human rights, working conditions, diversity and inclusion, health and safety issues, labour standards, product liability, privacy and data security
Relates to how well companies are governed, assessing themes such as board diversity, transparency, ownership, board independence, ethics and executive compensation.
At MJ Hudson we support investors, managers and companies to develop their own ESG strategies, embed these into their organisations and measure the impact they are having.
So, what do you see as the challenges and issues facing ESG and sustainability?
“ESG is an area that is rapidly expanding, and as a result there’s lots of and jargon that gets thrown around that can cause confusion, preventing investors, managers and companies from engaging with the subject. It can put people off from taking the first step, and yet engagement at all levels is critical to accelerate buy in and to grow investment in this area.
I thought it would be useful therefore to provide a short jargon buster:
the avoidance of the depletion of natural resources in order to maintain an ecological balance
the practice of investing in companies whose business is not harmful to society or the environment.
an asset that is involved in or associated with an activity that is considered unethical or immoral (e.g. alcohol, tobacco, gambling). Note that these can mean different things to different people!
a strategy that excludes certain types of investments based on their negative impact on the world
Positive screening / impact investing
ESG strategy that looks to select investments based on their benefit to society or improvement of an industry’s sustainability practices
creating a false impression that funds operate with meaningful moral criteria for marketing purposes
That’s great. So, what do you think are the benefits to businesses and investors?
“I think one of the great misconceptions is that ESG investing provokes a sacrifice on returns. In fact, sustainable funds have performed well over the last 10 years, and they generally show greater resilience during market downturns.
Many companies with a high ESG rating also tend to be less volatile and achieve a higher selling price. It can also reduce the cost of borrowing too. Some lenders are offering lower interest rates on debt if they believe the strategy has ESG at its core.
I think that positive ESG performance will also become a priority for employers when looking to retain and attract talent as younger generations enter the workforce.
Ultimately, companies that adopt good ESG practices and introduce greater efficiency, sustainability, culture and compliance will inevitably create value.”
Why do you think ESG has become so popular in the last 18 months?
“COVID-19 has undoubtedly proved a catalyst for ESG investing. The radical affect the pandemic had on global economies in such a short space of time was a wake-up call that highlights the need for a different approach to investing. Parallels can certainly be drawn between the unforeseen risks of a pandemic and issues such as climate change.
Ultimately, I think ESG is here to stay for two reasons:
Change is happening for the sake of humanity rather than wealth generation and it is imperative if we are going to create a future fit for future generations
It is no longer optional – regulations (such as the EU Taxonomy and SFDR) are coming into force to ensure investors, managers and companies take this seriously.”
Thanks Finlay, that certainly confirms why more and more of RobMac’s clients are asking about ESG investments and sustainable portfolios.
If you are interested in learning about what makes RobMac different and think that we can help, then please get in touch. If you would like to discuss your financial position or mortgage further, you can arrange to meet online with one of our financial advisers by scheduling a meeting here >>
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