08/01/20

SUSTAINABLE FINANCE: Action is Needed over Perfection.

As published on citywireselector.com, Wednesday January 8, 2020.

Fund houses’ road to ESG integration and emphasis has been a long and winding one, and it will continue to present challenges that companies must acknowledge and adjust accordingly to.

That is according to Fanny Nosetti (pictured), head of multi-management at Banque de Luxembourg Investments, who made the comments in a blog post entitled ‘Work in progress!’.

The Luxembourg-based fund buyer, who featured in Selector 100 and also received an award at our inaugural Selector 100 ceremony in Montreux, said the increased discussion around responsible investing has led many asset management firms to stress their sustainable credentials, but believing that the job is now done is misguided.

She said: ‘It’s a long and winding road and some of the bends need to be approached with care. Along the way, there are muddy patches – like greenwashing – to be avoided as far as possible, especially as they can tarnish the credibility of everyone involved.

‘But there are also heartening areas where tangible progress can be made because determination pays,’ Nosetti added.

The idea that the ESG discussion is ongoing is something Nosetti believes asset managers should work harder to explain to investors. The long and winding nature of the road must be systematically highlighted as the end-clients are no fools.

‘They look at the companies included in a ‘sustainable’ portfolio and often question what they see. That’s as it should be. It is important to be clear and take the time to explain that sustainable finance does not mean perfect companies.’

Nosetti highlighted how some ‘clean energy’ or energy transition funds hold Amazon, for example, which does not immediately look like an ESG investment. ‘Yet Amazon is aiming to achieve the targets set by the Paris climate agreement 10 years early (in 2040), starting with the promise of using 100% renewable energy by 2030, then reaching carbon neutrality by 2040.

‘In practical terms, this will mean investing $440 million to create a fleet of 100,000 electric vehicles, saving the emission of 4 million tonnes of carbon gas,’ she said.

Nosetti accepted there is an element of scepticism creeping in as more and more companies rush to the market to promote their ESG offerings. However, she said it is better companies embrace and people – namely selectors – work to find the best than having nothing to work with at all.

‘What’s not to like? This stage may be a bit messy but it is gaining in enthusiasm and, above all, it’s vital. Asset management companies are taking the subject on board for the long term and they are playing more than an anecdotal role.

‘Their commitment is essential, both in terms of defining a sound ESG investment process and their capacity to gain the loyalty and confidence of the end-investors by showing them it is possible to grow their capital at the same time as adopting a sustainable approach. All in all, it’s pleasing to be part of this new impetus and help shape it.’