• 19/09/2017

Protecting Returns with ESG

Protecting Returns with ESG

By Marlynne Bidos

Will Oulton, Global Head of Responsible Investment, First State Investments

Sustainable investing is becoming increasingly important to investors who want to align their investment decisions with their personal norms and values. As of the end of 2011, there was an estimated US$13.6 trillion of socially responsible investment assets worldwide with approximately US$8.8 trillion and US$4.3 trillion of assets under stewardship in Europe and the US, respectively.

Despite the growth of this investment strategy in the West, data shows that similar investments in Asia are lagging behind with only US$74 billion in assets under stewardship. The current gap in Asian investors’ use of these strategies is due to several factors, including the need for more information regarding sustainable investing, product offerings with corresponding themes and government regulation

Will Oulton, global head of responsible investment at First State Investments, says that developing robust sustainable investing practices in Asia “is going to take some time”. But he points out that investors can be major influencers in using their investment decisions to push for responsible investment options. With regard to the development of this strategy in Europe, he says, “The public pension fund market took a big step forward on this agenda because the beneficiaries of public pensions are interested in these issues and they are quite vocal. Hence, in Europe, sustainability is a big feature of product and marketing strategies.”

Outside of the collective strength of the public pension system, he says that high-net worth individuals (HNWIs) also play a unique role in developing responsible investing approaches because they have more leeway in their investment choices and are known to be trendsetters. Within the HNWI community, the most common strategies are sustainability themed investments around specific environmental issues, such as energy and climate with a tendency to favor emerging markets exposure over developed markets; 42% of these investments were made in water and clean energy. “They have a history of innovation in investment. They tend to go where others fear to tread initially because they can and they generally have a more open mindset to new investment approaches. If you combine that with a desire to contribute to sustainable development, it’s a powerful combination,” says Oulton.

Why SRI?

The misconception that sustainable investments come with a performance sacrifice continues to cast a dark shadow over the investment approach within the financial community.

But Oulton says the financial crisis has proven otherwise, pointing out that investors who used a responsible investing method, including considering environmental, social and governance (ESG) rules fared well through the financial crisis. “The performance of many sustainable investment firms, with the exception of the ones heavily skewed towards sectors or themes, were resilient and performed reasonably well. It vindicated the fact that those managers and investors who give a high regard to this as a discipline came out with a higher quality portfolio than those that didn’t,” he says. “SRI funding hasn’t been as negatively affected during the financial crisis as other things.”

Standing on this precedent, Oulton remarks that sustainable investing, in general, results in better investment decisions. “If you are not capturing ESG issues, then you are not taking a view on ESG as a risk parameter and you are carrying a high degree of risk in your portfolio,” says Oulton.

“A high-quality investment process that includes a rigorous amount of ESG integration is more likely to better evaluate risk factors.”

Of all the factors to be evaluated, Oulton highlights the importance of corporate governance. “Corporate governance is a key factor and a lot of work is done to assess the culture of a company and management, the way a company functions, the quality of management and independence of the board and how strong it is in guiding the management,” says Oulton.

More parameters and tools needed

While the Principles for Responsible Investment have put the investment principles and approach into code, there remains a need for the industry to come to a consensus on its methods for adviser and investor communities.

In 2012, Cambridge Associates developed a decision-making framework to help investors evaluate and implement social investments within a diversified investment portfolio. Among the suggested steps for advisers are:

1. Assess the motivation for considering sustainable investments

2. Assess the combined return and the combined risk

3. Select and size investments

4. Determine the best asset allocation approach

While this provides some guidance, Oulton says more work needs to be done in developing tools to properly assess product providers’ skills, competencies and approaches to sustainable investing.

Oulton also highlighted the need for metrics that measure the social benefit of responsible investing methods. “More work needs to be done in understanding the impact of the investment process,” says Oulton.

In response to this, he mentioned that First State Investments has collaborated with Cambridge University “to better understand the ESG outcomes on the investment process across strategies in the investment business”. At the conclusion of this research, First State Investments hopes to have a framework that it can use to estimate a net benefit to society in a particular portfolio. BM



first-state劉國傑是首域盈信的大中華投資總監。首域盈信是首域投資旗下的團隊,負責管理亞太區、全球新興市場和世界其他地區股票。他於 2002年4月加入團隊。劉國傑負責亞太區及大中華區投資組合的股票篩選以及投資組合建構。他擁有劍橋大學文學學士及工程學碩士學位。他同時亦是特許財務分析師。

今年,首域的投資團隊再次贏得多個獎項,涵蓋亞洲股票、中國股票、香港股票及新興市場股票類別。此外,首域亞洲股本優點基金(First State Asian Equity Plus Fund)及首域印度次大陸基金(First State Indian Subcontinent Fund)獲得同級最佳的殊榮,而首域大中華增長基金(First State Greater China Growth Fund)則贏得「傑出表現獎」。

首域大中華區投資總監劉國傑表示:「我們的投資理念乃建基於『可持續投資』。我們深信,可持續的公司持倉,對於我們所有投資組合能否提供長期回報而言至關重要。我們是長 線投資者,致力於作出五年期的投資決策,我們的所有投資決定乃據此而定。」









在風險管理和企業管治分析方面多下功夫,是「絕對回報思維」不可或缺的一部份。劉表示:「在嚴守這規則下,我們的基金能擁有比同業更出色的長遠表現。」 BM