Webinar: ESG - How things are changing in the light of COVID-19

20 July 2020

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Watch Ryan Medlock, Senior Investment Development & Technical Manager's latest appearance on CISI TV

Ryan Medlock , Senior Investment Development & Technical Manager at Royal London appears on CISI TV along with Jacqueline Lockie CFP Chartered FCSI, Head of Financial Planning, CISI and Ben Constable-Maxwell, Head of Sustainable and Impact Investing, M&G to discuss ESG and how things are changing in the light of COVID-19.

CISI video transcript

Jacqueline

Hello everyone, I’m Jackie Lockie, I’m the Head of Financial Planning at the CIA. And welcome to today's seminar which is all about ESG investing and also the changes and impacts that COVID-19 have had on the ESG community. So I have two great speakers with me today, we're going to interrogate and interview for the next hour. So I have Ryan Medlock, welcome Ryan.

Ryan

Hello Jackie

Jacqueline

Ryan is the Senior Investment Development and Technical Manager at Royal London - great to have you with us, thanks for joining today.

Ryan

No problem, thank you.

Jacqueline

Our second speaker is Ben Constable-Maxwell, welcome Ben.

Ben

Hi Jackie.

Jacqueline

And Ben is the Head of Sustainable and Impact Investing at M&G. So thanks again for joining us today

And so we have some logistical things to go through before we start, and as usual for those of you who are familiar with these sessions using Zoom, if you have any issues please could you use your chat to tell us about any technical issues that you have. And we have one of our staff members experienced with dealing with this behind the scenes who will contact you directly and help you sort out those issues. If you would like to ask us any questions during the session, we would encourage that and please feel free to pop your questions by in the Q&A box so if you use the Q&A box only for questions and use your chat box only for technical help that you might need.

Now during today's session we will also be running three polls and then we will be discussing the output of those three polls as well. So we will do one poll near the start of the session and then second or third polls as we go through the session this morning. OK so let's start at the beginning. Ben I'm going to start with you if I may, M&G are asset managers who run ESG funds for the benefit of their investors. Could you just explain briefly how you work as a team and how well that works at M&G?

Ben

Sure, yeah good place to start, thanks Jackie. So we really at M&G, I sit on our Responsible Investment Stewardship team, I've also got a bit of a role focusing on impact investing in particular and we might touch on that later but at the core of our team's role it is to support our investments, our fund managers and ultimately our clients in considering and analysing ESG or non-financial issues that affect the businesses that we invest in whether it's in equities or real estate or other asset classes as well. So we really work hard to support the investment teams in really capturing all those environmental social and governance risks and opportunities across our portfolios. I'd say a couple of things which we might touch on again later but the we're really trying to do that and we're working on doing that. And I think delivering that program right across all our investments. So it's not just for a small subsection of our funds it's actually across all of our investments. I think increasingly we're realizing that thinking about ESG risks and opportunities really properly incorporating them into our investment decision making is that the right way to invest. So it's really central role in the management of our investment program and across the board of M&G.

Jacqueline

Okay great, thanks Ben. And Ryan, from Royal London's perspective you see yourselves as asset owners. Could you just explain the difference in the approach that Royal London might take to M&G.

Ryan

Yes, certainly Jackie, I mean as a mutual Royal London is committed to being a responsible investor and that's from both an asset manager perspective and as an asset owner perspective, now I work within Royal London intermediaries on the asset side so we're a provider of individual and workplace pensions. So for us the focus is very much on long term investing. We have just over 41 billion assets under management and the majority of that is actually managed by Royal London Asset Management but a significant proportion is also managed by a range of external fund partners, M&G being one of those. Now we've effectively got what we call our three pillars of responsible investments in place and the first pillar is stewardship and voting. So that means being more proactive working with our fund manager partners asking them to vote and looking at how they manage our customers money. The second pillar advocacy and engagement, so encouraging our fund manager partners to engage more with the companies that they hold. We know engagement can lead to better management, better management can lead to better corporate financial performance and can lead to a better impact on society as a whole. And then the third pillar is ESG integration so asking our four major partners to integrate different ESG techniques within the processes and there's also a variety of ways that we practice responsible investment ranging from responsible selection in terms of the fund manager partners that we're going to work with regular reporting and monitoring and also being an asset owner. Actually being signatories to different initiatives I'm talking about the UNPRI and the International Corporate Governance Network and I'm sure we'll return some of those themes much later on.

Jacqueline

Yeah, great, thank you. So ESG in the term of ethical investment world has really developed on in the last 10-15 years hasn’t it? I was just thinking on your thoughts on how things have changed, how things have been consolidated. Ryan perhaps you could start by just explaining from Royal London’s perspective how you see that the market has been changing and actually maybe, some of the good things and bad things that have come along the way?

Ryan

Yeah I mean the market's changed massively and I think and yes this interrelated issues here about the terminology and jargon. It's something that our industry does very well isn't it in terms of definitions and you know we have come a long way over the last number of years where you know if you were to talk about green funds and ethical investing and where we are now. I mean, if you look at what is ESG now and define ESG I would term that as the explicit inclusion of ESG techniques practices within them investment analysis and investment process. There's obviously a variety of ways that you can go around doing that and I'm sure we'll again touch on some of those a bit later on. But I've also heard people using the term ESG when they're talking about other responsible investment approaches, such as exclusions for example, and I think this is a big big issue. It was good to see the Investment Association published the responsible investment framework at the back end of last year. Hopefully a lot of you have already seen that if you haven't, I definitely encourage you to take a look at that, it’s very short, very punchy. It talks about effectively the different types of responsible investment approaches you've got in there so it looks a defining them in terms of the actual labels you would use and giving you a bit more substance behind what those approaches are. There's this five approaches that that framework talks about give sustainability focus, impact investing, exclusions, stewardship and ESG integration. And I think that framework in itself should help ensure and drive a bit more consistency in the industry. So I think that's definitely important milestone.

Jacqueline

Yeah that's great, thank you. Ben, just coming back to you about this, one of things I found it's kind of a bit like in my days of investing and you have an absolute return fund and every Absolute Return Fund did something different but they were all in the same market,all in the same pot if you like when you're doing your research but actually you weren't comparing apples with apples and they were all doing – you know - that some would be cash plus, some would be beating a benchmark plus and those kinds of things but still all in the same pot. So from an adviser's perspective from our planet's perspective researching investments you know are there things that you think that we should look for to kind of make sure that we're comparing like with like?

Ben

Sure. I think quickly picking up on what Ryan was saying for the previous question just as it was the context. I think he's absolutely right in saying that the ESG world has moved on leaps and bounds in the past even two or three years. But certainly in the last five to ten years. And I think it is really increasingly becoming ESG is becoming a framework or a lens for investors to use to just do their job properly. To think about relevant - we call them “relevant material” that relevant environmental, social, governance issues that affect businesses over the long term. So, I think it's important when we're talking about ESG products and different types of them to talk about the fact that, increasingly all responsible, well managed funds run by responsible fund managers are really incorporating ESG in their approach in really structured way. And if they're not I think that is becoming a problem increasingly a problem. Obviously, that's one aspect to the history and it's the integration that Ryan and I both talked about. The other aspect is don't see bespoke funds that have ESG a bit more explicitly in their mandate. And I think advisors and wealth managers and financial planners have some really, increasingly great resources in the market to help guide them. You know organisations like Morningstar and Square Mile are beginning to sort of incorporate and have already done quite a lot in incorporating a responsible investment/ESG lens in their guidance. You've got some specialist players in the market like Fund Ecomarket who really are there set up explicitly to help advisors understand ESG the market place; who are the leaders maybe who are the laggards etc. And then I think you know you can't beat this sort of due diligence are really reaching out to your fund provider as an advisor and say you know organisations like M&G and Royal London and anyone else really, are increasingly willing and I think should be in a place to articulate what they're doing or what that funds the funds management what the availability of funds are to our customesr. So you've got some third party sources of information who I think really are designed increasingly good providing guidance on the strengths weaknesses of different funds ESG approach. But I think reaching out to your to the asset manager themselves is an important step and I think that really tells you as an advisor or a planner a huge amount about the quality of their offering and how genuine they are about to living in ESG program and how well they're managing your investments.

Jackie

Now that's really interesting.

Ryan

Sorry Jackie, I think that's just to extend on what Ben was saying there, I think that's a that's a really important point about reaching out to asset managers and asking questions obviously as an asset owner that's something that we place quite a lot of significance on and I definitely would encourage you know, planners and advisors to ask their current managers questions within the due diligence process and potential managers going forward as well you know questions which are going to look at what type of initiatives and organizations their signatory, to what their specific policies are in relation to responsible investment. To point out things like voting, engagement, integration and also how firms are using ESG data within their organisation as well I think they all really significant points to cover.

Jackie

That's a really good point actually Ryan. I just pick up a little bit further on that but there seem to be areas of kind of some maybe more pure ESG funds than others. You know as Ben was saying you know a lot of of managers and companies are building in ESG related information and restrictions and you know thinking about ESG when they're building their businesses but firm and advisors perspective selecting funds and re-selecting funds. Do you have to meet particular criteria to call yourself an ESG fund - you know is there a set of criteria that you must meet or is it a case of you know each mandate could be slightly different and again, you know, maybe some ‘pure’ if you like than others for want of a better expression.

Ryan

I mean that's the beauty of ESG because there is no one size fits all approach to this that there'll be so many different techniques and processes being adopted you know as Ben said you're going to have specific ESG funds which are doing something under the bonnet you will have firms which are applying an element of ESG analysis to their funds. They'll be houses applying it within their research, within the practice. With so many different ways that you can integrate this and as Ben touched upon in the previous question I do think the role of third party ESG tools are significant here in helping advisors understand the different approaches, because some of those tools that Ben referenced there are really quite good actually screening out and filtering the different approaches you know if you wants to look for a particular subset of funds which took a particular approach.

Jackie

OK, that's pretty interesting. Ben did you want to add to that?

Ben

Yeah, I would add a couple of quick points. I think one is that the third party tools really I think are playing an incredibly important role in improving the transparency and you know if we talk about it as democratizing as in providing better access to this information and then it's been the case in the past. They are playing a massively important role. We sometimes have an issue with, you know, they're doing a great job that they're trying to capture the quality of an ESG fund given some of the points we made about how diverse they can be the different types of ESG approach to the fund managers can take. It's quite difficult to put in a single letter or a number. So while we think it's really important I think I do think advise and planners need to look underneath or look below the some of those high level, you know, some of those high level ratings. And again not disparaging the ratings but just saying that they are telling you something they might not tell you for example whether a fund is investing in companies that are improving it’s ESG standards they might just tell you whether a funder is invested in companies that have already good ESG standards and some people say we think somebody that's a lot of value in doing that investing for change investing for improvements. And I do think you know thinking more as we move towards impact investing and sustainable and impact investing you know some of the tools out that don't quite capture how a fund invests for positive impact yet. So I think we are going to see some improvements in the future. There is a really good source again some of the audience may know about 3D investing is specific a specialist on impact and sustainable an impact investing so if you're looking for that sort of type of fund that are good go to place and the final comment I would quickly make is somebody with Ryan mentioned the UNPRI the U.N. principles for responsible investing as a good. Every year M&G and all of us have to fill in a very very extensive survey talking about what our responsible investment efforts. It's a lot of work. I used to do it myself. It takes a hell of a lot of time but it's worth doing. It tells you a lot about what you're doing and that it's open to your clients. Dan is a good source if he wants to sort of see how the organization as a whole is managing ESG and again share action. Put an annual survey out about the kind of the biggest fund managers in the world and the biggest asset owners. I think they're also doing and they're good to go to sources for how the asset manager overall is delivering on its ESG kind of responsibilities and objectives.

Jackie

OK that's really interesting. Thank you. So I think that's a good time to pause for our first poll before we continue I think some of the questions that are coming in. And so our first poll question is going to be about what what's your current use of responsible investment solutions within your investment proposition? So for those of you who are working in advisory businesses there are a number of different options here as you can see on the screen. And we would like you just have a quick read of those options if you will and then we'll just pause for a minute. A couple of seconds or so to allow you to vote. So if you just have a quick read and now please

OK hopefully you have all voted so we will just do our thing behind the scenes.

And then we will have a quick look at the results.

Right, that's really interesting. So majority think it's a growing consideration within their businesses and I think you know my gut feel from talking to planners and wealth managers is very much that. And I think some of it  looks at you know how do you build 10 a lot of people you know they have a well-defined investment proposition and how do you build in the extras over and above what you're already doing to build in those created extra criteria if you like for ESG. And we one of the things I wanted to talk to both of you about is you know you were saying about Ben looking under the bonnet of things and going a bit further but from a practical perspective if you're looking past software companies like Morningstar and so forth who are doing the analysis already or some levels of analysis anyway, how do you go further? You know if you need to if you as advisers they need to be engaging with fund managers more. I mean when I went to the AIC a number of years ago we had this a similar situation with VCTs where advisors needed to look under the bonnet a bit more than the kind of high level research that was being put out and what that turned into was everybody trying to develop their own due diligence forms their questionnaires that were then they were flinging to every VCT manager who would then have to employ one or two people to complete these due diligence questionnaires and of course, all the questions were very slightly nuance differently. So is there any you know set criteria somewhere that people could download and then you know if there were any already designed due diligence forms that you know ‘how do you look under the bonnet?’

Ben, I’ll throw that one at you first.

Ben

Okay, I'm not sure if I have a brilliant answer to that. Well you know we know normally the recipient of these surveys rather than the designer of them.

Jackie

Do you see lots of these surveys? Do you think you see lots of due diligence?

Ben

Yes it was you know that the level of enquiry on ESG right across the spectrum of all of our client base is just kind of hit nuclear levels if that's the right way to put it. Yeah, it's all it's becoming a probably, you know, one of, if not the most inquired area that we receive from our clients whether it's sort of pension funds or wealth managers or financial advisory and wealth planners/ financial planners. So it was we're seeing it everywhere have to say, I haven't seen necessarily a kind of template which is used, we tend to get a lot of quite similar questions but interestingly they tend to be structured in a slightly different way. I think you know that there's it's great to have a template to identify what are the key responses but I don't think this is a kind of boilerplate response. I think each adviser I think it's valid for them to ask the specific questions that they think are relevant given their knowledge of their clients. Now, some of these situations will be core like you know how you how does the fund or the manager is integrate ESG, what are the resources - the team behind that program how properly integrated is it into the fund and the manager itself if you if you speak to the manager just he or she, do they embrace that or is it just the ESG team. What is your product suite of ESG or sustainable or impact product sitting in existence or in development? No that's some pretty cool questions. I think one of the key questions is always whether you're asking these questions in person or in a survey or in a written inquiry is just always you know ask for examples ask for evidence of what the fund manager is doing rather than letting them to just refer back to high level principle processes. I think the proof is often in the pudding. Find out you know how important ESG in the actual investment approach and how does it influence investment performance. So I think there are some core questions I would quickly refer back I think to and I don't think this is over plugging but I think Fund EcoMarket, that web site is a very good resource for helping advisors and planners to identify those questions. So I would suggest again maybe you could you would agree that I'm not Jackie or point people in the direction as well but I think that is a great source of insight and the kind of questions that advisors should ask. Now that web site and that organization is very much set up to help adviser advisers navigate through this fast-changing world.

Ryan

And I think in terms of generic information and maybe as a starting point I would also suggest requesting copies of a firm's latest assessment report on th eUNPRI right that we've referenced earlier as well. Yeah I mean the good thing about the UNPRI, I think there's over 2300 signatories now of the asset manager and asset on the site sites it's grown substantially over the years. And as Ben said earlier you know every year you have to fill in the sort of like survey assessment report details how your organization is fulfilling against those principles. So yeah, it's not going to be the holy grail for advisors. I definitely think as a generic closest thing you can get to sort of like a template. I would definitely suggest requesting that.

Jackie

Okay great, thank you. All right let's move on to some other questions and then I'm going to come back to you for a simple one because you mentioned it first. What is the real difference between ESG investing and impact investing is that really its impact investing about. I mean I guess it's a subset isn't it of the general overarching ESG principles that has that particular focus for Progressive growth into more responsible areas for companies, is that right?

Ben

Yeah, so we see ESG as a really crucial as we've both said a few times really important framework for the 21st century investors to adopt, it makes sure that the investment thinking, investment decisions are taken into kind of environment social governance issues that are not any longer peripheral or secondary. Often, they are somebody what's driving company performance and success. So ESG is that just mindset almost to get on top of these relevant issues. Sustainable and specifically impact investing is more about sure. Taking all those factors into account, impact investing is about investing particularly specifically in companies that are providing solutions to some of the world's major social environmental and some great economic problems. So it is and it's more of the smaller subsets of the subset of companies around the world that are that are providing actually and intentionally and immeasurable way providing solutions for you know climate change or providing solutions for big issues like inequality or the health crisis that we're currently experiencing or pollution issues those sort of things. It's also a smaller subset of the market. We think you can still find it very very interesting really high quality is so it's really about investing in the solutions and importantly investing in the solutions where you can measure the positive impact that those companies are having on the on that sustainability challenge.

Jackie

Okay great. Thank you very much. All right. Let's move on and Ryan We touched earlier on regulations you know there's the MIFID II regulations that firms have to embrace if they're looking at ESG. And you know what's your sense of the any problems or difficulties that that fact planners and wealth managers are facing you know adding in those extra bits that we talked about earlier for to expand their range that they get there they're comfortable to advise on, expand their knowledge to do that.

Ryan

Well I think that that the regulation point is absolutely huge. And you know I was surprised at the poll question early to see how this is all becoming a growing consideration. I think one of the primary drivers behind that is all the regulation coming because there's an absolute raft of regulations coming. I mean my favourite state is the one that talks about 2018 as a year alone because in 2018 there was actually over 170 ESG related, regulatory measures proposed globally. And that was more than the previous six years combined. So, I think that kind of slightly itself signals that the scale of change in this area and that there's a lot happening at EU level. Obviously, you've got the Sustainable Finance Action Plan the number one recommendation and that is the creation of this taxonomy which is an absolutely horrific word. But I actually think that the taxonomy is going to be really really good in terms of improving transparency maybe combating greenwashing as well which we might come back to later on. But in terms of that look the one piece of regulation which I think is going to be the most significant for advisors and planners is undoubtedly this proposed amendment to MIFID II and this proposed amendment to Article 25 of MIFID II which is all about the suitability assessment because you know there's a proposal there that the advisors have to assess their clients ESG preferences within that suitability assessment so that's bringing ESG right into the heart of the advice process. We were led to believe or at the end of last year and going into this year that that that could those final rules could have been published as soon as by July this year.

I think that's incredibly unlikely now in the grand scheme of things think is more likely to be later on in the year and then probably looking at a minimum implementation period of between three and six months. In theory, all of this could come in by the end of this year but t I think it's much more likely that we're going to see this and maybe the first half of next year but it certainly makes sense now to think about preparing for those regulations thinking about how we can possibly integrate that within the processes, as I said earlier maybe a good starting point is looking at how these can be or how these considerations can be integrated upfront in the research and due diligence processes and then thinking about the sort of questions you want to be asking the clients. But it definitely makes sense to maybe start engaging with clients on some of these matters now. And I do think you know what has happened over the last two months and three months or whatever with a lock down and COVID there is an element of this I think has given Advisors a unique opportunity to bring the impact of ESG to life with clients.

Jackie

Yes I was going to ask you about that actually because do you think that that governments around the world, because of the situation that we found ourselves in with the pandemic at the moment do you think that governments around the world will start to involve themselves more actively in you know doing more of the right thing you know more because you know we've got less planes flying, less cars on the roads, you know all of those kinds of things I know we we've seen in London and other cities you know around the world you know this drive for to get people walking to work or cycling you know widening pavements and so forth. Do you think that that is you know obviously is a positive thing at least on a short term basis but you know do you think these sorts of changes that could be sustained into the longer term and actually have a positive impact on people who are investing in the ESG investments?

Ryan

I hope so, I hope this is going to serve as you know a driver for the long term structural change and I think you know this sounds crazy doesn't it when you're talking about positives out of a pandemic but I definitely think you know the headlines that we've seen about a lockdown in terms of the cleaner air, less emissions that that is without doubt a positive which is which has emerged from this. It's quite interesting I saw the article published yesterday,  I'm sure a lot of people have seen it as well about our people commenting on it's all very well good. But there's a fear of a backlash you know as soon as the lockdown measures are lifted the emissions are just going to shoot straight back up and I think you know governments and a lot of companies is it's going to be really testing to see what sort of change comes out of this. You know, I'm thinking from it from a company perspective in terms of, if anything this pandemic is magnified social issues greater. If we think about how companies are adopting flexible working patterns, so is that going to continue going forward? Are we going to see less domestic travel? You know as a as an industry, I think we have probably been guilty of over travelling before you know whether that's the conferences or meetings or whatnot. So, I think there's a lot there's a lot of things that we can take out of what's been happening over the short term and sort of estimate what's not going to what's the long-term effect here.

Jackie

Yes that's really interesting.

Ben

Yeah, I think it's such a seminal moment for the you know, I think our industry and probably the world's kind of prone to the hype and hyperbole to some degree in times like these. But I do think it's very valid. I think the moment that the current moment really is a moment for rethinking lots of situations and know I think the fact that the companies that are performing best at the moment and have proven resilient tend to be these companies that are you know sustainable by their nature or certainly managing their responsibilities well on looking after the employees thinking about their stakeholders trying to work out how to manage their responsibilities not just their shareholders but their broad range of stakeholders. Again, we can touch on that night maybe that those sort of companies proving to be more resilient and we don't think that's just about the short term. We think there is a shift a structural shift towards reflecting the value better inflection of value that is really sustainable companies. And I do think you know governments have said you know really waking up to this issue. Ryan articulated it really well.

We do think that there is a sort of shift in mindset in society and you know governments and policymakers sometimes lead they sometimes follow society. I think in this case they're probably doing a bit of both. That that you know the investors interesting I think are playing a positive role in pushing for greater, a greater focus on sustainability and you know decent business practices making sure that essentially that companies that have looked after employees in this period tend to be those ones that are rewarded by shareholders and through that kind of performance resilience that isn't something that I think would have necessarily happened 10 15 years ago. So, I do think there is a shift in mindset happening there. There are interesting things governments can do like ensuring that any bailout funding is sort of contingent with the need to improve you know ensure that working practices and working standards are maintained you know ensure that companies really have a primary role to look after their employees to support their local communities to take account of their environmental responsibilities. Think about their supply chains all those sort of things. So that that investors increasingly are pushing for that kind of government action. And I think that's really really valid for them doing that you know in Europe and that really affects it's been reflected in the U.K. as well. The green the Green Deal is very much focused on growing out of this recovery or it has been. Developed into growing out of this recovery in a green and sustainable way not just because that's the right thing for the environment and the climate but actually because it's a great way to support long term growth in industries and in areas that you know can be the drivers of growth in our European UK global economy for decades to come. So, it's really exciting moment admittedly of course born out of a really terrible situation. And I think it's a really interesting, fascinating time for us all to be around.

Jackie

Yeah, that's really interesting. Let's just move on to a little bit because I wanted to ask, Ryan, I'll come to you first if I may about this conflict when we are researching ESG funds and investments for clients and the issue of you know corporate investment responsibility of the companies, the underlying companies that we might be investing in that you're investing in as well as both London and the amount of weight. There's this kind of conflict isn't there in any end to ESG investment and one company and trying to improve their ESG credentials because some of the money could go to the shareholders if they made bigger profits but actually some of that money would be redeployed in to other non-profit making activities necessarily but things like doing more to support staff know maybe helping them work from home and things like that and wider impact the impact that that company has on the environment reducing their carbon footprint all of those sorts of things and so, there is a know that there is research out there I think that that shows obviously you're looking after your staff, one, is a very good thing which helps more productivity but there is this kind of kind of conflict inside ESG isn't there about you know giving shareholders enough return and supporting the growth of a particular business.

Ryan

Yeah I mean it's very closely linked to those points that Ben was making just that just a few moments ago when he was talking about those companies displaying good, positive ESG credentials and performance at this moment you could argue that they are more aligned to longer term strategic thinking. I definitely think that's a big theme. For me one of the big things which has come out of the whole COVID episode is the COVID it has placed a lot of vulnerabilities under the microscope in terms of talking about businesses and an interesting thing is the ESG investing and a wider responsible investment approaches is about addressing some of these vulnerabilities. So, I think that's been an emerging theme for me I found interesting over the last couple of months.

Jackie

Yes, it is really interesting isn't it. And I think also looking at the current price of oil is so low at the moment. I mean what was it in March that you basically they were paying you to take barrels of crude oil away in the American markets weren’t they for a week or so which just seems it seems a bit nuts but there you go! So, do you think you said that maybe there is that concern  that, post COVID, once things hopefully will return to normal, do you think that that the low oil price which is probably most likely going to continue, basically if we're not flying and we're not driving then that is a significant reduction in demand isn't therefore for crude oil and for the petrol and so forth. Do you think that could have a detrimental impact on ESG investing as the kind of world fires into life and kind of goes a bit mad and starts jumping on planes and going to all the places that we thought we were going to go, we had on our bucket list and never got to?

Ryan

It’s an interesting one. I mean, we all talk about returning to normal post COVID, I don't think any of us can say what normal is going to be after getting back from this. I think what has been interesting particularly when you know when we look at the performance of ESG funds and companies with strong ESG credentials over the short term and the long term I was looking at the MSCI World versus MSCI World ESG leaders index just yesterday actually for the latest numbers I mean ESG version of that index was launched in 2007. I think September 2007 so you've got nearly 30 years performance data in the two indexes have performed pretty much neck and neck over that time period but what was really compelling is when you looked at the short term performance of those two indexes over the last 12 months the ESG version actually outperforms that World version quite substantially because they actually rebounded on pretty much dismisses the myth that ESG is a bit of a bull market luxury. You know I've heard that term thrown around a bit for quite a number of times so yes again it's going to be interesting to see what happens on the other side of this pandemic whether we do return to normal what impact that is going to have and undoubtably the oil price is going to be a factor here.

Jackie

Yeah and Ben following on from that you know this the ability for the ESG funds they've done so well in recent times but their ability to sustain this growth to help sustain and you know positive change across the world you know is going to be a key factor isn't it, in the success of the sector as well as you know the success of you know the you know humanity and isn't it really?

And you know there's this issue of resilience within those companies isn't there is that a concern for you as investors in these specific companies?

Ben

Well, I would say that companies that manage their ESG issues this of two aspects I think one is about the kind of short term resilience and the characteristics that enable companies to survive and sometimes even thrive in this sort of period of crisis. And then there is the kind of longer term question you know we're all really long term investors. It's important to see how our investments fare and in the short term you know we've obviously got a responsibility for our clients to make sure that our portfolios are resilient to deal with these crises but that know we're long term investors we're taking a 5, 10, 15, 20 year view and Ryan probably even longer from an asset owner perspective. So actually it's crucial to see that the resilience and the characteristics that drive performance in the short term for us that's things like having you know not overstretched balance sheets as a rule. Companies that can have quality business models that can generate decent levels of returns on their investments over and over the market cycle see that there are companies that are well managed got well the boards which are really on top of their issues and managing their business and their strategy. Well I think what's really fascinating at the moment is that companies which have really set out a clear purpose and are really aligning the whole of their organizational culture and their strategy around their clear purpose you know that the reason for being those folks who are companies doing really well we think those companies that are set to do really well in the long term. Which brings us to you know that second point important that short term resilience but actually the positive thing about sustainable and impact investing as we touch on a bit earlier is you were investing in companies that are really there to provide solutions to some of these major global sustainability systemic problems and those problems aren't going away. They're not a fad. They're not a short term trend. These are issues represented for example by the Sustainable Development Goals the SPG that the U.N. coordinated. These are like the main issues that the world is going to face for the next 5, 10, 15, 20 years. And we think that companies are aligning with that sustainability agenda. Companies that are providing solutions for climate change and health crises for the pollution crisis for addressing things like global inequality we think those companies can attract capital and we think those will be successful businesses. And it's a successful investment approach for the very long term.

Jackie

Okay great, thank you. I think that's a good time to pause. We've only got about 10 minutes left everybody. So, we've got about a hundred and fifty people who are listening live at the moment. So, if you are thinking about asking any or any more questions and then now is your time to do that.

So, we're going to move on to our second poll and our second question is for those of you who are giving advice to clients and to think about how people like Royal London and M&G can help you. How can ESG providers help assist the community of advisors out there in giving advice to their clients? Are there things that you would require more of? And I'll just give you a couple of seconds if you could please.

Okay that's great, thank you very much.

Right, while we wait for the results behind the scenes and I just wanted to ask Ryan actually just a quick question following on from what we were just talking about the investments with restrictions. You have a lot of advisers have incorporated some sort of discussion with their clients about their ethical beliefs for many years. But actually this is all kind of morphed into ESG. And do you think that this has provided an opportunity for regulators to push this agenda more forcefully and into the investment world as we were saying into MIFID II? Do you think this is that this kind of because these conversations have always been going on but it's always been very difficult. You know when I think back to my advising days some years ago difficult to do the research and now it's becoming more mainstream. I think they've been reset that there have been some surveys of the public haven't they that it's something like 60 or 70% of the public have ethical concerns don't they?

Ryan

Yeah absolutely. I mean we did a we actually did some customer research was about the back end of last year actually. We basically put a survey on our website and what we looked to do is capture the views of over five and a half thousand existing Royal London UK customers. So pretty substantial stuff and we asked estimate of variety of questions around responsible investing and responsible behaviour. And a couple of the questions took that this notion of responsible behaviour versus responsible investing and when you broke it down into the different demographic groups and splits across our customer base we saw a large proportion of our customers were saying that they strongly associated with behaving responsibly, in terms of their day to day activities, but also what was really interesting is that those same people also set the risk responsible investing is the most important investment consideration to them. So even more than the perceived risk of return of an investment which I found was really interesting. Obviously, for some people it clearly wasn't the most important recommendation particularly advised customers. Advised clients tended to place more importance on risk and return etc. But some of the individuals that really come to mind that was in the demand pool if you like it captured obviously the millennials. We all know about the intergenerational transfer of all of this from millennials but it also captured females as a demographic an interesting way those individuals who have yet to enter the advice market. So, we know it's a big consideration for them and I think you know how we go about as an industry engaging with those people in that benign pool and getting them to one they ultimately enter the advice market. I think that's going to be a critical thing. But yeah there is obviously a growing awareness of responsible investment. There's no doubt about that. And I think that's only going to grow and it's largely to do with societal shifts and societal changes that we've seen. And obviously regulators are using ESG and responsible investing to re inject a long term focus back into investment activity.

Jackie

Yeah, OK, thank you. Let's have a look at the poll results.

So, one hundred and fifty people. So, the overwhelming - oh well not overwhelming I say 50/50. So, lots of training and more visibility of education materials needed. So, I think there is still there really is a feel certainly from the participants today. You know one hundred and fifty different participants saying that no I think there is certainly a lot more that that you can do that we can do as a profession that providers and investment managers can do. And I think yeah maybe this is one of the things that we could do collectively together is to start looking at you know education materials you know being a source you know that I think once we've done today's session that this will go on CSI TV, we can put links to the documents that we've talked about today to help people if they want to revisit the subject later to be able to get you know sources of information sources of research and I know Ryan, you have some source of research as well from EY didn't you?

Ryan

Yeah, there's some research that we published a short while ago, we basically worked with the EY to review all of the empirical evidence that exists which has looked at linking ESG considerations and corporate financial performance and that was a really compelling piece of work because it covered looking at research studies from quite wide period. So, we're talking about between 1970 and 2015. So not just something over the last couple of years, over a really substantial period. You know the overwhelming majority of those academic studies support the view that ESG can have either a positive or neutral impact on corporate financial performance. So that was really interesting work and you know what. We're happy to share that document as well if anyone does want to look into that.

Jackie

Okay that's great. Perhaps that's something that we could attach to the CISI TV link at the end and just quickly somebody was just asking what was the name of the U.N. report with the assessment report?

Ryan

The assessment report. The latest assessment report is basically an annual survey report that if you are a signatory to UNPRI you have to complete and fulfil and it basically outlines how you adhere to the six principles of the UNPRI.

Ben

Really quick comment on that on that previous point. Very briefly in the interest of time the you know I think there is a strong view that the demand for information is great from anyone really in the market. All the survey suggests that very very significant majority of people wince when asked the question are interested in hearing more about sustainability and ESG. ESG isn't particularly engaging mnemonic. So, I think if you ask people if they want to know more about ESG you're not necessarily going to get the same response. Then if you say do you want to know more about how your investments might be affected by climate change, do you want to know how you invest might be invested in companies that are that sort of testing on animals that are you know kind of being flagged for human rights abuses or all your investments helping solve some of the world's problems. You know, if you ask the question in a more direct way, I think you got a really great response. But even if you ask a very general question roughly 85% of the population not just millennials or women is will quite rightly flight but 85% of those surveyed population tends to give a response that they want to know more. So, I think that the onus is absolutely as you quite rightly say on us to deliver on that and to help our customers understand better. So, we've got a major role to play.

Jackie

Ben, there’s another question following on from what you just mentioned there. Can you screen out kind of countries or companies ethical behaviour towards animals and things like that? Yes can you be that specific or is it a more general approach when you're doing your research?

Ben

So what are the real advances and the real help support for managers such as ice such as what you have on the call here today is that the tools available to help us to build any type of screening got so much back so we can yeah we can absolutely screen out companies that are involved in animal testing there's an interesting distinction between companies that perform animal testing for purely medical reasons.

All companies that conduct testing on animals for example cosmetic reasons. That's a more of an ethical debate about whether you know for example in the current crisis developing vaccines and developing treatments, whether it's for cancer or whether it's for at 19 whether it's for diabetes you know there's a question about whether one should ask the question about having animal testing for those issues but I think for broader, For example cosmetic testing cosmetics testing I nonmedical testing I think most people have got a pretty clear view on that. So yeah you can absolutely do that. I mean for example are positive impact funded emoji which we set up a couple years ago has is a solutions focused fund it's investing in companies that are providing solutions to environmental and social issues but it has a whole array of screens one of them is animal testing nonmedical reasons.

Jackie

Okay that's great. Thank you very much. Right. I think we've got a couple of minutes left so we'll move onto our third and final poll quickly. And so again for all of you the audience out there when you're looking to the future do you think that you'll see an increase in sustainable investment recommendations to your client? So, will you be. Do you think that there is going you're going to see more demand? And to what extent across your client base do you think that you will see that?

So, if you think all of your clients will become more concerned please to ask box of hand 2 percent or depending on what proportions and that you think that your client base will be seeking more ethical investments.

So please vote now and we will have a quick discussion about that.

Great, well while we're doing that. Ryan you know that are all companies rated with an ESG kind of rating or credential. And is that published the you know as advisors and wealth managers we can find that somewhere?

Ryan

Well as a number of tools that do different things. So, Ben touched on some of these earlier. You've got tools which are specifically scoring and ranking funds so you know you can screen funds on different approaches or you can look at getting funds that have an overall particular score and then there are specific tools which provide a company assessment. So, you know the big one there is sustainable ethics MSCI also do on those as well. Obviously, you know at the moment you need to pay off a license to get those ones. But I think that the point here is that we will start to see more transparency around some of this research and some of these fees going forward that the taxonomy which is coming that you know that we're not going to see the full life there in terms of how that's implemented until into 2021. But that is greatly going to improve transparency behind funds and certain I can estimate it.

I think that's really interesting and it's great to see how there's so many positive things moving in to help that increase and visibility. Let’s look at these poll results the. So, do we think more people are going to?

Yes definitely 50 to 75 percent so we've still got more than 140 people on the line at the moment still indicating that you know more than half of their clients are going to be looking at ethical ESG funds in the future. So I think you know there really is that that head of steam picking up isn't there and actually one of the people on the call today is just saying that you know the Green Finance Education summit which is due to be hosted on the twenty night the main London has been cancelled. You know who plays this role of pushing forward the ESG agenda? Is it governments? Is it you know individual companies you know where is the pressure coming from for companies to take on more ESG responsibilities and think about it in the kind of broader context of their you know their lives and their footprint?

Ben

Yes sure. So, it's coming from everywhere. You know I really do believe that very strongly. You know whether it is the government's agenda in the U.K. you know we've got the COP Conference of Parties climate talks the annual global climate talks we're going to be having clients go later this year they've been postponed due to the current crisis. But there'll be there'll be happening next year. We're hosting the G7. You know that the meeting the annual meeting of the world's biggest economies next year as well. Top of the agenda there will be issues like climate change how to deal with issues such as inequality how to deal with the resilience of our economies and systems to crises like the crisis we're currently experiencing. And so, governments and policymakers are super focused on it. They might be there might be a cancellation of conferences and things in the short term. But I would say that's definitely not indicative of them being off the agenda. And then I think really briefly investors this is top priority for investors these days. It really is. And it's not just sort of the sustainable fund managers it's the whole of organizations like energy where senior management the board all of our investment approaches are really really embracing and accelerating our focus on these issues. And I think the advisory and wealth management channels are really starting to embrace this. I think we can help them along the way in a really important way but then companies that we invest in you know they know how important it is to the regulator and to investors. And I think and customers by the way. So, they are really getting on board and really having to articulate how that sustainability strategy how effective it is and also how that what their purpose as a company is and how and why they exist. What why do they want? And, why would we invest in them. And then obviously the kind of underlying consumer customer citizen I think they're realizing helped by people like the kind of national hero David Attenborough and various other people that really, they're embracing I think a focus on this as well. So, I think it's really universal this this agenda and I really don't think it's going away at all.

Jackie

Thank you. And we're running out of time rapidly. So, my final question to Ben, just a quick one. You know there's been a lot of disagreement I think over the years of what some companies being “more green” than others. You know with these this kind of as you mentioned earlier this green washing. Do you hear “more green” actually underneath your kind of carrying on pretty much the same as you were before with a few very minor tweaks around the edges?  Do you think there's more pressure moving forward to kind of oust those people and say actually you're not part of the ESG environment or is this where impact investing can help to encourage and you know either you know get in line and start doing more or don't say that you’re ESG?

Ben

Yeah, I mean that's a broad question to finish on so be very very obvious speedier than I normally. If you look at the investor. I think greenwashing and people talk that's sort of the importance of transparency and I think it's relevant for companies that we invest in but it's super relevant for us as investors as well. I think transparency is crucial we really push companies to articulate clearly what they're doing and we push companies to be very happy and how they're embracing the broader ESG responsibilities and programs so we need to get better disclosure from companies.

Transparency helps us as investors understand whether the company is doing things genuinely or just for the PR. I think that scrutiny needs to be applied absolutely to us as investors as well. I think that's true generally ESG but in particular it is true that the impact investing with sustainability you focused investing if you if you're running a fund there is an impact fund. It is investing explicitly in companies and helping solve the world's problems. And I think while the social environmental sustainability problems and I think if you aren't transparent about what you're doing aren't transparent about some of the problems your investments encounter as well as the positives. And if you just sort of give high level sort of principles rather than granular reporting and the narrative and measure ability of that impact then I think people see through you. So transparency is the crucial issue for ESG investing generally but in particular the impact investing and I do agree we are moving I think our market is moving towards impact investing is a really exciting way to deliver to aim to deliver great returns over the long term for investors for our clients but also to help solve some of these challenges we've been talking about today. So, I think it's a great direction for us to be having it.

Jackie

So final question to the pair of you. I'll start with you Ryan, a quick yes or no - I know this is going to be hard for Ben today but quick yes.

If we enter a recession or even a depression together there's been talk this week on the UK entering a depression as bad or worse than the 1930s. Do you think that that's a threat to ethical and ESG investing? Yes or no?

Ryan

No, I don't think it's a threat. I think if anything it places a higher importance on ESG investing going forward.

Jackie

Okay. Thank you, Ben?

Ben

I think it's a threat that we need to be mindful of and that's why I think all the work we do is especially important. So, I think we're going to come out of it in a way that Ryan described, and I do think it's something we need to be careful and cautious about.

Jackie

Okay, that's great. Thank you very much.

Thank you, Ryan Medlock from Royal London and Ben Constable-Maxwell from M&G. That's great. Thank you everybody. Thanks very much and good afternoon.

 

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