The train cannot be stopped! - Thank you to e-fundresearch for this interview
How the COVID-19 crisis has so far affected the ESG investing movement, why "Impact" is increasingly coming into focus and whether the investment fund industry could experience its own "Dieselgate" in the next few years was discussed by e-fundresearch.com in an exclusive interview with the Austrian sustainability pioneer Dr. Susanne Lederer-Pabst.
e-fundresearch.com: Ms. Lederer-Pabst, you have been following the ESG investing movement in its various forms very closely for many years: In your opinion, how has the COVID-19 crisis affected this structural trend? At least with regard to the media presence, the dam should now be finally broken….
"(...) Impact is a crucial parameter for return and risk."
Susanne Lederer-Pabst: Yes, because it is now evident that Corona not only causes damage in many areas, but also opens up huge opportunities. I think now is really the time for socially responsible and effective investments to change the global economy in a sustainable way.
The economic shock initially led many to withdraw their riskier investments. It would be more supportive, and there are impact investors who see it that way, to invest to help companies build resilience and contribute to recovery. Clearly, this crisis will have a profound impact on economic development in general, and particularly on how we manage investments in society and our environment. A big outcome of this is thinking about the purpose of our money. How do we use it and what impact does it create? So impact is added as a crucial parameter to return and risk.
e-fundresearch.com: It is now difficult to find a fund company that does not claim to have considered ESG "always and anyway as an integral part" of the investment process: How do you rate the risk of greenwashing-disappointments in this context? Will the fund industry see its own "Dieselgate" in the next few years?
"A lot of positive things have happened here, the train is headed in the right direction and it has already picked up speed."
Susanne Lederer-Pabst: To be honest, I don't think so, one or two black sheep could come out over time, but the entire industry is certainly not involved in things like greenwashing. A lot of positive things have happened here, the train is heading in the right direction and it has already picked up speed. A new report by the meta-supervisory authority (International Organization of Securities Commissions), for instance, identified three recurring problem areas after reviewing the initiatives of individual supervisory authorities and market participants. In addition to the divergent activities of the various regulatory authorities, specifically in the area of disclosure obligations, there was secondly, a lack of specific definitions of sustainable activities and thirdly, greenwashing has been recorded as a challenge for investor protection. IOSCO now wants to deal with these identified problem areas in depth and is setting up a task force for sustainability. This should also facilitate the coordination of relevant regulatory and supervisory approaches, create transparency and comparability of ESG data, examine the methods and governance of credit and ESG rating agencies and analyze the risks of greenwashing. So the topic is now being pursued very seriously at the political and regulatory level.
e-fundresearch.com: What do you advise your cooperating companies to do? What should fund companies consider in their ESG presentation & communication?
"If you act responsibly, please communicate it too (...)"
Susanne Lederer-Pabst: I always advise to report authentically and of course to stick to the truth - fortunately half-truths come to light very quickly these days. I also advise to show and publish all the effort that is made. Through having a sustainable high-yield manager as a cooperation partner, we have noticed that many companies had already anchored great ESG-approaches in their companies and processes, but nobody outside knew this because they just didn't communicate it. It is therefore important that these areas are also appropriately carried outwards. We also have had similar experiences with our partner companies. Some only wrote their own ESG papers on our initiative and only then put into words what they have been practicing in the company for years. If you act responsibly, please communicate it, this is now more important than ever, after all, there are more and more investors who make sure to invest in compliance with ESG and therefore need to know this information.
e-fundresearch.com: In your role as a third party marketer, you are in constant dialogue with professional and institutional investors: Have the motives for fund selectors to decide on ESG investments changed noticeably in the recent past?
"(...) this crisis has simply shown again that a management that is oriented towards sustainability and takes responsibility brings long-term advantages and also has an impact on performance."
Susanne Lederer-Pabst: Yes, I think so, because this crisis has simply shown again that a management that is geared towards sustainability and takes responsibility brings long-term advantages and also has an impact on performance. The trend for sustainable stocks to outperform is not only due to the crisis - the SRI index, which has been calculated for twelve years, beat its big "conventional" index brother in almost all phases. In the long term, however, this is also clear, because accounting scandals and fraud such as Parmalat, Enron, Adecco and Wirecard will not exist in sustainably and responsibly managed companies. I know that these are isolated cases from the point of view of the financial market, but it still hurts an investor who holds this stock in the portfolio. For some institutional investors, this ESG / sustainability fuss is too exaggerated, but they all recognize the risk-minimizing value.
e-fundresearch.com: State-controlled “Green Recovery”: What further impulses do you expect on the regulatory side? Many trends have accelerated significantly again due to COVID-19, does this also apply to the regulators' sustainable finance initiatives?
"Corona will clearly fuel this movement in the long term instead of slowing it down."
Susanne Lederer-Pabst: Yes, absolutely, because even if the coronavirus is initially in the spotlight on the stage, "Green Finance" is already waiting for the end of this act in order to be able to recapture the stage light afterwards - it will rather be a joint stage appearance, because Corona will probably be with us for a little longer - but a spotlight on Green Finance is just as certain. In any case, the EU Commission is of the opinion that a more impressive strategy for sustainable finances is necessary, since the progress made so far in financing a more sustainable economy is not taking effect quickly enough. For this purpose, a renewed “Sustainable Finance Strategy” was announced in the Green Deal in December.
As one of the three central points, this provides for the regulatory framework to be set in such a way that “green investments” have positive effects for citizens, financial institutions and companies; ESMA, the European Securities and Markets Authority, also published its “Sustainable Finance Strategy” in February, in which it explains how it intends to take ESG factors into account across the entire spectrum of its regulatory activities. These include working on a uniform set of rules with standards and transparency obligations for market participants as well as ensuring consistent, efficient and, above all, convergent supervisory application of EU legislation in every EU member state. The EU is making strong progress to push its sustainable finance initiatives, and ESG initiatives are also gaining momentum at national level. The train has just really left and cannot be stopped, that's my opinion. Corona will clearly fuel this movement in the long term instead of slowing it down.
e-fundresearch.com: Thank you for talking to us, Ms. Lederer-Pabst!
Original article: e-fundresearch.com