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Crystal-balling ESG Trends in 2016

 

Crystal-balling ESG Trends in 2016

During our recent member-only webinar, speakers from CAER, MSCI ESG Research and Sustainalytics provided no fewer than 15 ESG trends expected on the radar in 2016. What came through strongly was that ESG issues are ever increasingly dynamic and that to stay abreast of shifting trends requires ever better data.

 

The logic follows that better quality ESG data helps debunk or validate the causal links between factors, provides evidence for business cases, transparency for risk and opportunity assessment and when you throw that all together helps with better investment decision making.

 

Hong Kong-based lead analyst at MSCI ESG Research, Emily Chew shared her perspective on the forthcoming trend impacting wealth managers who will need to offer a new level of transparency aligned to clients’ individual values and preferences.

 

Her presentation cited research showing that in 10 years’ time, around two-thirds of US-based wealth will be controlled by next-generation women. What does this mean for financial advisers and wealth managers? A completely different set of client questions needing thoughtful answers.

 

She anticipates that younger female clients will want investment options aligned with their values. This will also mean on one hand seeking smarter responsible investments in themes such as renewable energy and on the other hand a more concerted view on how longer-term investments are limiting their exposure to risks such as climate change.

 

The success in being able to service this emerging market of young cashed-up female investors is in securing and maintaining their trust with smart tools that can drill down into the details of the underlying companies, their ESG ratings and scores (such as tools MSCI is developing). My example here is for a Catholic-values based investor — two companies may have the same proprietary ESG score but very different tolerance thresholds to revenue from contraception technology; knowing about these thresholds may matter to the client.

 

Keeping to the theme of transparency, Julia Leske from ESG research house CAER asks “where’s the money” and focussed us onto the issues of corporate tax and anti-bribery regulation.

 

The 2016 federal election is a platform for further debate and lobbying by companies on the issue of corporate tax minimisation. She prophets that boards of listed companies will most likely have to take a position on corporate tax minimisation – some of them forced to make these positions public. This issue is one to be played out with the assistance of business groups and high-paid lobbyist consultants given that all political parties are in favour of some improvement in corporate tax payment and transparency with various potential outcomes for those listed companies.

 

Anti-bribery or facilitation payment legislation is also on the agenda in Canberra with the current system seen as largely ineffective. There are suggestions that Australia should align with UK and US law; moving in step with the US system would enable out of court settlements to take place rather than matters being referred directly to trial as is local protocol.

 

Transparency was also in mode for our third speaker Catalina Secreteanu of Sustainalytics who spoke about the impact of the UNFCCC processes requiring countries to publish their Intended Nationally Determined Contributions (INDCs). The INDCs spell out a country-specific emission reduction plans across the areas of energy, water, transport, mining, manufacturing, agriculture, forestry, built environment and infrastructure. She sees the INDCs as a way for companies and investors to calibrate their investment focus by gleaning insights to a country’s likely policies and programs aimed at attracting and enabling investment.

 

She also made mention of the Montreal Pledge with over 120 investor signatories committing to publicly disclosing the carbon footprint of their portfolio on an annual basis, with many moving further by also disclosing their approach to managing exposure to stranded assets and managers’ risk management of climate related issues.

 

This combination of country-led disclosures with investor and company-centric transparency all contribute to the availability of better data for improved decision making.

 

2016 seems to be all about better quality, trustworthy data. And at the root of this is improved transparency.

 

Details about all the trends discussed (from live animal exports to marriage equality and systemic climate risks) can be accessed as slides and video recording via RIAA’s member-only page at www.responsibleinvestment.org

 

Nicolette Boele

Manager, Policy & Projects

 

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