Clarice Avery speaks with Harald Walkate, Head of Corporate Social Responsibility and ESG at Natixis Investment Managers about the range of approaches to sustainable investing based on investors' goals.
- We have two categories of ESG investing, what we call “value” and “values”.
- With value ESG investing you’re focused mostly on the financial value of your investments. You’re using ESG considerations as a way to uncover investment opportunities or to manage risks, but you’re really focused on generating returns and outperformance, and using ESG as one tool in the toolbox.
- The other type of ESG investing is values, which tends to be more focused on the ethical side of things. This is especially visible when investors don’t want to own certain kinds of businesses or industries, such as tobacco or alcohol or fossil fuels. That is a personal decision for each investor.
- In the values bucket we also see what we consider outcome-oriented strategies, where an investment team will develop a strategy specifically centered around some kind of ESG conviction or component.
- We talk about our approach as “ESG that makes a difference,”which really applies on multiple levels. It could be making a difference to your investment returns, or it could be making a difference in the sense that you’re influencing company behavior, or helping to solve society’s big problems.
- One of the big themes that people love to talk about is ESG data. So, there’s an entire industry now of ESG data providers, and there’s always the question of, “How valuable is this data?” One, is this going to help you make better investment decisions? And two, from a moral or ethical perspective, what does that data tell you, and how subjective is it? Can you make it more objective? So, that’s an interesting discussion to follow.
- The European Union put together a Sustainable Finance Action Plan a year or two ago. The centerpiece is something called the taxonomy, which basically says which activities are green and which are brown. One example is nuclear energy, which has no emissions, so a lot of people are saying this would be useful in fighting climate change, therefore it should probably be considered green.
- Other people are saying, no, nuclear energy is obviously very risky, there’s a link with nuclear weapons, that’s something we want to stay away from, it should be brown. So, a lot of very fundamental disagreements there, but people are following it with a lot of interest because it’s certain that when the taxonomy is finalized, it will have a big impact on the investment industry.
The EU taxonomy for sustainable activities is a series of technical screening criteria for economic activities that can make a substantial contribution to climate change mitigation or adaptation, while avoiding significant harm to other environmental objectives.
Investing involves risk, including the risk of loss. Sustainable investing focuses on investments in companies that relate to certain sustainable development themes and demonstrate adherence to environmental, social and governance (ESG) practices; therefore the universe of investments may be limited and investors may not be able to take advantage of the same opportunities or market trends as investors that do not use such criteria. This could have a negative impact on an investor's overall performance depending on whether such investments are in or out of favor.