ESG investing has become an empirical target for investors rather than a means to achieve other outcomes, according to the chief executive of Natixis Investment Managers.
Addressing delegates at the PRI’s annual conference in Paris yesterday, Jean Raby suggested there was insufficient progress on a range of environmental and social issues despite rapid growth in funds “launched by us asset managers to fulfil demand for strategies driven by the incorporation of environmental, social and corporate governance [ESG] and non-financial factors, broadly speaking”.
“Perhaps we focus too much on trying to demonstrate empirically the answer to the question of the relationship between ESG and performance,” Raby said.
“I don’t need empirical evidence to convince me that if […] I make an investment in an entity that destroys the environment, doesn’t treat well its workers and has a governance that is full of conflicts of interest, then I cannot see that as a reasonable assumption of long-term sustainable performance.”
After giving a few examples for where “the winds of change” were not yet visible, Raby said the question he was asking, “with no pretence of having a comprehensive answer, is why are we not making as much [of] a difference as we should given the current state of the world”.
He said that “a lot of effort has been pushed on measuring what we do in terms of exclusionary approaches” – or using ESG factors as a risk management tool – “and perhaps not as much on investment that actually enables positive steps towards the goals we are pursuing”.
There was a lot of focus on “headline statistics”, such as the percentage of assets under management run in accordance with ESG-related strategies, or the number of engagement instances with corporates.
“In this sense I feel, and I hope it’s not the case, that ESG has not become the means to an end but an end in itself,” he said.
‘What are our objectives?’
He urged investors to “go back to the basics”, adding: “Let’s ask ourselves ‘what are we trying to achieve?’, ‘what are our objectives?’, ‘are we getting any closer to these objectives?’.”
Raby acknowledged that the impact of responsible investment on “real world sustainability” was difficult to assess, and that “the timeline is long”, but that it was important the industry knew by what measures of success it wanted to be judged.
He argued that “collaboration and co-operation” between the financial sector, governments and regulators was “probably the most powerful tool we have to fight some of the most pressing issues of our time”.
“Short-termism” also needed to be fought, said Raby.
“The issues we are tackling are a long time in the making but also a long-time in resolving,” the Natixis CEO said. “Alignment is required not only on substance, but also on timeline.”
He also argued that, although there were positive aspects to the plethora of initiatives that had emerged over the last few years “to mobilise our industry” over a range of environmental and social issues, “I do believe that the time has come for the industry to better channel its efforts”.
Jean Raby, CEO of @natixis talks about continued environmental and social challenges despite growth in #sustainanblefinance. A welcome reminder - incl a quote from Yogi Berra - of the need to focus on #impact! #PRIinPerson pic.twitter.com/XQPZo0Svh8— Margaret Kuhlow (@WWFLeadFinance) September 10, 2019