GLOBAL - Environmental, social and governance (ESG) specialists believe that integrating the responsible investment concept into a pension fund's investment strategy should move beyond equities and be applied across an entire portfolio.
Speaking at the TBLI conference in Amsterdam yesterday, Ran Fuchs, global head of ESG investing at RiskMetrics, said he was surprised that ESG investments had started with equities.
"To show the difference between long-term and short-term investments, the best place to start is probably fixed income," he said. "Fixed income investments last for 10 to 15 years or even longer, so any type of long-term ESG investments should be going straight to debt."
He continued: "The short-term performance of such investments should easily convince investors that there is value in this. But the impact on the industry can also be much stronger through fixed income because, while the price of the equities is relevant, the cost of debt and financing is absolutely vital to the survival of the company. In other words, companies will be less sustainable in the long-term due to the rising cost of debt and funding."
While Fuchs said he expected the ESG concept to expand into other investment sectors, Michael Jantzi, chief executive at Sustainalytics, noted that ESG has already moved into some other asset classes, such as real estate.
"Most investors we talk to in the real estate space look at least at the environmental part of the equation - they just never called it ESG or responsible investment," explained Jantzi. "Recently they have started to put that brand on it because it means something now."
And with more and more sustainable products available, integrating ESG across various asset classes now seems a possibility.
"With regards to sustainability, we can construct quite different kinds of portfolios today," said Wolfgang Pinner, head of SRI at Erste SparInvest in Austria. "There are so many products out there - defensive sustainability products as well as rather volatile products in the field of thematic investments - that there is no problem at all in constructing a well-diversified ESG portfolio. All of the components available in the field of traditional investment are also available in the sustainability space."