There is growing investor demand for sustainable products, with 168 new funds launched in the first half of 2019, after 305 in 2018. However, ESG investing (investing that focuses on environmental, social and governance factors) remains a tiny part of the whole investment space.
Victoria Leggett, Head of Impact Investing at UBP, recently took part in an Asset TV masterclass analysing the current dynamics in the sector and outlining the challenge of developing reliable standards.
Momentum has been building very quickly in the area of sustainable finance: as citizens, we are all aware of the challenges the world is facing and we increasingly agree on the need to find lasting solutions. Despite its rising attractiveness, responsible investment is still an area “full of jargon” that can sometimes be misleading, notes Victoria Leggett, Head of Impact Investing at UBP, along with a panel of industry experts, during an ESG masterclass recently broadcast on Asset TV.
As the area expands, there is a growing trend to use the 17 United Nations Sustainable Development Goals adopted in 2015 (UN SDGs), as a roadmap.
“In the absence of a common standard, which we will be hopefully getting to, the UN SDGs give an area of commonality for end funds selectors”,
confirms Victoria Leggett.
To this day, some investors are still avoiding sustainable investments for fear of having to sacrifice performance. “Actually, it is the reverse we are aiming for”, insist UBP’s Head of Impact Investing and her fellow specialists.
Take, for example, the case of impact investing in the listed equity space. The aim of impact investment is to engage with companies that demonstrate a clear intention to tackle the most pressing environmental and societal issues and contribute to change. “A business providing a profitable solution to a problem is actually better placed to grow faster and more profitably than the broader investment universe”, explains Victoria Leggett.
Especially as this business might be supported by a favourable regulatory environment or bolstered by growing consumer demand, or both. Therefore, “responsible investments shouldn’t be a case of compromising on return. It is one of the rare cases of win–win”, she concludes.
Victoria Leggett nevertheless insists on adding a note of caution: “As ESG becomes mainstream, there are huge incentives for asset managers to look nice in this perspective", she notes. But it is not always the case when you look in more detail. When picking an ESG fund, every investor should check that the selection process is just as high for ESG as for financial parameters.”
Although she admits that a lot of work still needs to be done on transparency and ESG disclosure, Victoria Leggett is firmly of the view that impact investing and, more broadly, sustainable investing, have a bright future ahead:
“As citizens, the power of our investment is huge and yet underutilised. Through our investments, we, men and women, all have a real ability to make a change.”
Head of Impact Investing