ESG reaching out beyond plain equities
GLOBAL - While the financial crisis may have slowed the development of traditional financial products, it seems to have encouraged new environmental, social and governance (ESG) products.
Traditionally firmly set in the plain equities arena, new ESG products have started to venture beyond the current offerings, at a time when investors are still eyeing equities with caution.
UK-based hedge fund provider Auriel Capital Management, which has assets under management of over $500m (€356m), has recently started to develop ESG strategies for institutional investors in Europe and North America within the absolute return space.
"Until now, equity investors in ESG have mostly been faced with very narrow, themed portfolios, such as climate change or clean technology portfolios," said Adam Seitchik, managing director at Auriel Capital.
"But I believe the institutional market is looking for very well researched and transparent equity strategies that can translate ESG research and data into risk and return. That is what encouraged us to create an ESG investment platform that can be implemented throughout the whole portfolio and within an absolute return-seeking context."
Auriel Capital is working together with research partners such as Eiris and Trucost in order to use its existing research platform and analytical tools developed for traditional financial data as an empirical platform for analysing and constructing portfolios based on very diverse ESG data, both in terms of return-seeking and risk management.
Elsewhere, the attention has been on the ESG fixed income side. The World Bank issued green bonds worth SEK2.8bn (€258m) in November 2008 and worth $300m in April 2009, the latter of which were bought by the US state of California, with SEB functioning as the lead manager
"Client demand for these new products has been good, especially as traditionally there has been no green fixed income area," said Christopher Flensborg, co-ordinator fixed income securities and derivatives, capital markets, at SEB Merchant Banking.
"Particularly at the current time investors are interested in alternative yet conservative investments with guaranteed returns. And so we plan to issue a few more green bonds this later year."
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