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5 ideas to explore before investing in Environment, Social & Governance

12/06/2019

« Today we see interest for ESG solutions from a large universe of clients, ranging from asset managers, to private or retail banks, and to hedge funds », says Isabelle Millat, Head of Sustainable Investment Solutions for Global Markets.

1. Define your Environment, Social & Governance (ESG) goals 

We work with our clients to help them define their ESG investment strategy by looking at and combining four types of ESG goals:


Responding to the increasing interest toward ESG investments from a wide range of investors spanning from asset managers, private/retail banks to hedge funds and relying on our engineering expertise, we are able to offer tailor-made solutions to each type of client in order to align their ESG investment strategies with their individual objectives.

 

 2. Be open to new trends

The evolution of our SGI range of indices since 2007, illustrates how client demand has  driven  strong growth and  diversification of ESG indices.

At first, our range of indices was focusing on environmental topics, with a composition advised by RobecoSAM, and on governance  subjects, screened by Societe Generale’s ESG research department.

Today, our range also encompasses indices addressing ESG more broadly, with for example:

  • An index composed of our Research’s top ESG score-based picks
  • A range of ESG Smart Beta* indices combining our smart beta research (equity factors)  with an innovative  ESG filter

* An approach to portfolio construction that aims to deliver better-than-market returns versus traditional market-cap weighting schemes

 

3. Embrace a long-term view

As ESG factors become mainstream, corporates are  adapting their approach and in some cases seeking to improve their ESG rating. This could present investors with new investment avenues, and an additional filter to select best performing corporates over time.

 

4. Don’t forget performance 

A report elaborated by our dedicated top-ranked  ESG research*  department shows that  since 2013 their top 10% ESG-rated stocks have outperformed Stoxx 600 by: 

 

 

 

 

 

 

Source: SG research “ESG rating and Momentum”, March 2019

The figures relating to past performances and simulated performances refer to past periods and are not a reliable indicator of future results. This also applies to historical market data.

* Ranked #1 SRI Research by Extel in 2015 & 2016

 

5. Watch out for regulatory developments

Whether to organise mandatory disclosures, foster transparency or outline the duties of financial institutions and investors in the ESG space, new regulations are implemented across financial centers around the globe with increasing frequency.

Among the most recent ones are The European Commission’s Action Plan on Financing Sustainable Growth (2018),  France’s Energy Transition (2015) & PACTE laws (to be implemented in 2019), the UK’s Statement of Investment Principles for Trustees  (2019), and Italy’s 38/2018 regulation to enhance ESG company disclosures.

We expect this trend to continue and investment strategies to adapt accordingly.