Launching the ESG & Impact Investment Forum – part 1

Maala International conference 2018

Contributed by: Sagit Porat

 

Global institutional investors sharing their companies’ practices and identifying trends

 

Responsible investment is about being invested. Rather than divesting, we should be active investors focusing on dialogue and engaging with our portfolio companies – this is where we can have the greatest impact” Ulrika Hasselgren, Danske Bank

 

Podcast:

Summary

Two points of view of investors were presented: Blackrock, the largest investment manager in the world, managing $6.4 trillion of assets ; and Danske Bank, a smaller investor managing around $250 billion worth of assets for customers around the Nordic region.

Main discussion points:
  • The investment process holds invested companies accountable. ESG topics are believed to protect the long-term value of assets, and are strategically brought from the outside into the core of the business and investment process. It is a “hot” topic globally.
  • Investors want to know that they benefit society and really make a difference. They are engaging with asset managers and with their portfolio companies, holding them to account on these issues, but also helping them to define ESG materiality issues and fine-tune their practices, their solutions and their disclosure.
  • Social issues are lagging behind the other two ESG topics – environment and governance, both in terms of disclosure and the awareness of investors.
  • Regulation is increasingly addressing these issues and driving the market forward.
  • The themes are truly long-term, and changes usually take a long time to appear. It is important – and challenging – to appreciate progress rather than full-blown change.
  • There is information overflow; investors must cut through to address what is material for the companies.
  • Materiality is key. Companies must define why ESG is important for them, to have a sense of purpose for the long term, and to provide real value for ESG investors.

Maala International conference 2018. Photo by: Netanel Tobias

Speakers

ModeratorKaren Mazor, Head of Investor Relations at Bank Hapoalim

Amra Balic, Managing Director, Head EMEA Investment Stewardship team at BlackRock

Ulrika Hasselgren, Global Head of Sustainability & Impact Investment at Danske Bank

 

Discussion:

Amra Balic | Blackrock – main points

Amra Balic, Maala Conference 2018. Photo by: Netanel Tobias

The investment process also addresses holding companies to account once we are invested. 2/3 of our clients are people who are saving for retirement, so they are truly long-term investors, and BlackRock believes that focusing on ESG topics will protect the value of assets. It is important to always keep in mind that we are investing somebody’s money.

As an investor, we work with the companies, holding them to account on ESG issues. Environment and governance are pretty well covered and discussed, but social issues are lagging both in terms of disclosure and the awareness of investors. In 2000, governance was at the forefront because the key reasons for economic crises were failures in corporate governance. Someday we will not have separate panels on ESG, because it will become an integral part of an investment process, and that’s where it needs to sit. I don’t think it will take 10 years as it did with governance, but will be much faster.

In some cases, we are working with clients, asset owners, who are interested in creating solutions for specific themes. ESG is increasingly driving and influencing companies on their long-term journey. The nature of conversation has changed dramatically over the past decade, whereas investors are more aware of ESG, and are demanding to know the details and see the impact on their portfolios. For companies to be successful, they need to identify and have a very clear sense of purpose, within their societies, and be clear on how they are going to deliver.

BlackRock’s five priorities for 2017-2018: executive pay – big topic; corporate governance; climate-related disclosure; strategy for long-term and human capital. These issues are long-term, with the exception of executive pay, in which you may see improvements from year-to-year. It is critical to be able to highlight the importance of progress rather than full-blown change. We need to work as an industry in helping companies to fine-tune their information and their disclosure. It is important to recognize this is not an area or an issue that’s going to be fixed by one group of stakeholders. We all should play to our strengths. Investors have an impact and have a voice, but in some cases where change is slow coming, maybe some form of regulation can also be helpful.

There is the growing role of regulation and ESG stewardship, such as the Shareholders’ Rights EU Directive that the members will have to implement by mid-next years. This has changed how we do things and provides a platform to be truly long-term.

I think the most humbling question, it’s that simple: why is this important to me? Investors will see through the fact that this is window dressing rather than something that’s integral and critical to the business.

 

Ulrika Hasselgren | Danske Bank – main points

Ulrika Hasselgren, Maala Conference 2018. Photo by: Sharone Amit

ESG is a hot topic around the world. Danske Bank aims to become ESG thought-leading, moving ESG from the outside into the core of the business and investment process, across asset allocations.

A variety of Investors around the world are asking for more from their asset managers; we need to show that we make a difference, show the real impact of an investment or an allocation into an asset classes, and how that ties back to the benefit of society, for the benefit of people and the environment. We call our strategy: sustainable investment with impact. Responsible investment is about being invested. It’s flipping the coin from divestment, which has been in focus in Scandinavia.

Responsible investment does not mean to shy away from difficult matters, dilemmas, different types of risks – as well as opportunities; but rather to have an impact, stay invested and deal with these matters through active dialogue and engaging with portfolio companies. The results might take years to show up, so not in the next quarter reports. If we believe in an investment, we also believe that we want to be a long-term investor committed to sustainable development.

When you bring ESG inside the investment processes, across strategies and across asset classes, you come directly to the challenge of what is material in terms of ESG. There is information overflow, and you need to cut through the noise of all the information available. This requires an active dialogue, based on the information about the companies, discussing potential gaps in disclosure, to understand what makes sense for the companies and what are the risks and opportunities for investors. Materiality is a challenge. In our new strategy, the SASB framework helps us to identify what is material for companies in different sectors in relation to sustainability matters.

For many years the institutional investors, pension funds, were driving this forward. Now we also see regulation very clearly, and we are going to see it also from the retail side, consumers setting new trends and shaping this industry going forward.

For ESG to really matter, it needs to be integrated, and it needs to be part of the investors’, fund managers’, investment managers’ DNA. We need to address the issues for us, or for companies, to be part of a society at-large, to deal with sustainability from a strategic aspect. This means for companies to also cut through the noise, and think what really makes a difference. This is also a leadership issue.