Investors must be prepared to compromise with asset managers over environmental, social and governance (ESG) issues, according to fund selectors.
At a recent Uhlenbruch investment conference in Zurich, advisers highlighted the tensions that exist between ESG-conscious investors and the managers pitching for their business.
Jochen Kleeberg, managing director at Alpha Portfolio Advisors, said: “We are going to have to find managers that comply with ESG criteria [from clients]. Despite the restrictions, they have to find alpha.”
For this reason, fund selectors have had to develop “prpfound insights” into ESG managers and mandates, added Michael Simmeth, principal at LGT Capital Partners.
However, some managers will not take mandates if they cannot invest in sectors such as tobacco for fear of missing out on potential returns, Kleeberg said.
In the US, the California Public Employees’ Retirement System (CalPERS) is considering lifting its long-standing ban on tobacco stock investments.
Research published last year by the $290bn (€270.6bn) pensions consultant Wilshire Associates found that a decision to ban tobacco stocks from CalPERS’s portfolio – initiated more than 15 years ago – had cost about $3bn in missed gains.
In total, CalPERS’s divestment programme missed out on gains worth $8bn, Wilshire estimated.
Lukas Riesen, a partner at PPCmetrics, said investors “have to accept compromise” on some ESG issues or risk restricting managers too much.
“There will always be companies supplying to carbon-intensive companies,” he said. “How far do you go?”
Earlier at the conference, strategists speculated that US president-elect Donald Trump might renew the country’s use of fossil fuels, in particular through domestically produced shale gas.
Trump’s victory in the presidential election earlier this month has already raised questions about political commitment to action against climate change.