ESG Roundtable

Responsible investing, widely understood as the integration of environmental, social and governance (“ESG”) factors into investment processes and decision-making, has fast become both a hot topic for investment professionals and an integral part of the conversation now between managers and investors.  While Europe seems to be leading the ESG charge, North America is quickly catching up, but the ESG philosophy, policy and implementation differs widely among the investment community.

The Maples Group works with leading investment managers and institutional investors in North America and Europe, in addition to Asia, to implement ESG policies and frameworks into their operational infrastructure.  This provides a 360-degree perspective as to how fund industry leaders are approaching ESG and leaves us well placed to action customised mandates for services incorporating ESG for managers of all sizes and across the spectrum of strategies.

ESG is clearly an important subject for the investment fund community.  At a recent Maples Group Investment Funds Forum, a poll of the delegates showed that 57% of respondents felt ESG had a substantial impact on their business over the past 12 months, compared with just 6% saying there had been no impact.

The Maples Group recently hosted an ESG-focused roundtable, which convened a panel of industry experts who discussed key trends and developments in this space, including ESG principles, portfolio management, monitoring and reporting.

One of the key takeaways from our panel discussion was the importance of determining an ESG philosophy before jumping straight into implementing a policy.  As such, the ‘theory of change’ is important with the understanding that in order to implement ESG, it is important to understand the exact change that is desired and to be able to measure and track against this change.

In terms of implementation, many challenges persist.  Our panellists considered a broad range of approaches from simply monitoring portfolios against a restricted investment, to developing KPIs for underlying investments, through to the full customisation of the process from a data aggregation, record keeping and reporting perspective.  The discussion also questioned the view that introducing a quantitative element to ESG for alternative investments is more difficult; in practice, it might just require a greater degree of customisation to harness the available data.  Furthermore, the alternative investment space may be able to make the biggest impact, as funds and investors typically have more influence on the underlying investment company including in some cases a seat on the board.

Among other themes, noting the bespoke nature of ESG, participants referenced the benefits of more bespoke fund structures, such as managed accounts and funds-of-one, which have seen increasing popularity among investors and offer the ability to implement investor specific ESG mandates.

The roundtable was moderated by:

• David Kushner, Partner at Global Asset Management Consultants

Participants included:

• Lara Banks, Managing Director, Natural Resources, Makena Capital Management
• Ronald Falls, Jr., Chief Operating Officer, Post Advisory Group
• Tarrell Gamble, Vice-Chair of the Board of Retirement’s Audit and CEO Succession Committees, Alameda County Employees’ Retirement Association
• Bob Kricheff, Senior VP, Portfolio Manager and Global Strategist, Shenkman Capital
• Justina Lai, Director of Impact Investing, Wetherby Asset Management
• Michael Malchenko, Senior Client Specialist, NEPC
• Breanna Stein, Senior Associate, Natural Resources & Portfolio Strategies, Makena Capital Management
• Mark Wood, Senior Vice President, Global Manager Research, Callan LLC.

Additional topics discussed include:

• Which factors or issues participants and their stakeholders prioritise and how they express these views;
• How ESG differs for traditional / liquid investments versus alternative investments;
• The differences between ESG and impact investing;
• What opportunities there are for institutional investors within ESG;
• How managers are implementing ESG within the investment process;
• The biggest challenges faced with respect to ESG and embarking on a sustainability journey;
• Which regulations are prompting the biggest changes in ESG; and
• Best practices for ensuring reporting and other disclosures are meeting investors’ and other stakeholders’ need for information