ESG in the Spotlight

Tavistock Wealth

Environmental, social and governance (ESG), a byword for sustainability, has in recent weeks occupied rarefied real estate on the landing page of several finance industry titans.

Head to Goldman Sachs1, a large investment bank, and since mid-December you’d have been greeted with ‘Our Commitment to Sustainable Finance.’ Or to BlackRock2, the world’s largest asset manager ($7tn), where you’ll find ‘Making Sustainability our Standard’ alongside CEO Larry Fink’s annual letter to other chief executives, which this year focuses on how climate change will affect core assumptions about investment risk.

ESG is no longer a side project designed to window-dress corporate social responsibility obligations, but a front-and-centre building block that will increasingly influence the direction in which CEOs drive their businesses – the number of mentions of ‘climate change’ in public company filings is up more than 50% from 20143. Goldman Sachs last month announced1 a $750bn package for sustainable finance activities, to be put to work over the next ten years. BlackRock too has staked a claim, with a plan2 to integrate ESG analysis into all active management decisions by year end – making good on their conviction that ‘sustainability-tilted portfolios can provide better risk-adjusted returns over time [than traditional alternatives].’ The forthcoming expansion of BlackRock’s iShares range of ESG exchange-traded funds is a similarly positive development and reflects strong demand from passive investors, pension funds in particular, to incorporate sustainability into longer term investment decisions.

The enthusiasm of the private sector has been matched by the fast-changing attitude of public institutions. Under new leadership, the landing page4 of the EU Commission has become a sea of greenery and solar panelling, directing readers to learn more about the just-launched ‘European Green Deal.’ Staggering in its scope and ambition, the package will cement Europe’s position at the helm of the transition to a sustainability-minded planet.

An influential report5 on global risks released each year by the World Economic Forum (WEF) for the first time identified environmental concerns as more likely to materialise and with potentially more severe consequences than other factors, like geopolitics and the macroeconomy, speaking to the immediacy of the sustainability challenge (see graphic). The report focused the minds of politicians and business leaders ahead of the WEF’s annual meeting in Davos last week, the first of several international summits that will provide a platform for collaboration and greater action on sustainability issues in 2020.

The ACUMEN ESG Protection Portfolio, Tavistock’s first ESG product launch, reflects an acknowledgement of the various global crises which society must increasingly begin to tackle and the importance of responsible capital allocation as a tool to help do so. As disagreements on definitions of sustainability are gradually ironed out, ESG will become increasingly integrated into traditional fund management and advisory ecosystems and will catalyse growth of the wider industry throughout the 2020s.

Bibliography

1 https://www.goldmansachs.com/
2 https://www.blackrock.com/uk
3 https://about.bnef.com/blog/bullard-10-charts-that-can-help-predict-the-year-ahead/
4 https://ec.europa.eu/info/index_en
5 https://www.weforum.org/reports/the-global-risks-report-2020

Head to Goldman Sachs1, a large investment bank, and since mid-December you’d have been greeted with ‘Our Commitment to Sustainable Finance.’ Or to BlackRock2, the world’s largest asset manager ($7tn), where you’ll find ‘Making Sustainability our Standard’ alongside CEO Larry Fink’s annual letter to other chief executives, which this year focuses on how climate change will affect core assumptions about investment risk.

ESG is no longer a side project designed to window-dress corporate social responsibility obligations, but a front-and-centre building block that will increasingly influence the direction in which CEOs drive their businesses – the number of mentions of ‘climate change’ in public company filings is up more than 50% from 20143. Goldman Sachs last month announced1 a $750bn package for sustainable finance activities, to be put to work over the next ten years. BlackRock too has staked a claim, with a plan2 to integrate ESG analysis into all active management decisions by year end – making good on their conviction that ‘sustainability-tilted portfolios can provide better risk-adjusted returns over time [than traditional alternatives].’ The forthcoming expansion of BlackRock’s iShares range of ESG exchange-traded funds is a similarly positive development and reflects strong demand from passive investors, pension funds in particular, to incorporate sustainability into longer term investment decisions.

The enthusiasm of the private sector has been matched by the fast-changing attitude of public institutions. Under new leadership, the landing page4 of the EU Commission has become a sea of greenery and solar panelling, directing readers to learn more about the just-launched ‘European Green Deal.’ Staggering in its scope and ambition, the package will cement Europe’s position at the helm of the transition to a sustainability-minded planet.

An influential report5 on global risks released each year by the World Economic Forum (WEF) for the first time identified environmental concerns as more likely to materialise and with potentially more severe consequences than other factors, like geopolitics and the macroeconomy, speaking to the immediacy of the sustainability challenge (see graphic). The report focused the minds of politicians and business leaders ahead of the WEF’s annual meeting in Davos last week, the first of several international summits that will provide a platform for collaboration and greater action on sustainability issues in 2020.

The ACUMEN ESG Protection Portfolio, Tavistock’s first ESG product launch, reflects an acknowledgement of the various global crises which society must increasingly begin to tackle and the importance of responsible capital allocation as a tool to help do so. As disagreements on definitions of sustainability are gradually ironed out, ESG will become increasingly integrated into traditional fund management and advisory ecosystems and will catalyse growth of the wider industry throughout the 2020s.

Bibliography

1https://www.goldmansachs.com/

2https://www.blackrock.com/uk

3https://about.bnef.com/blog/bullard-10-charts-that-can-help-predict-the-year-ahead/

4https://ec.europa.eu/info/index_en

5https://www.weforum.org/reports/the-global-risks-report-2020

This investment Blog is published and provided for informational purposes only. The information in the Blog constitutes the author’s own opinions. None of the information contained in the Blog constitutes a recommendation that any particular investment strategy is suitable for any specific person. Source of data: Tavistock Wealth Limited, Lipper for Investment Management and Refinitiv Datastream. Date of data: 28th January 2020 unless otherwise stated.

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