Fiduciary duty to incorporate ESG
By Wouter Klijn, 01 Jul 2011 (www.investordaily.com.au)
Colonial First State says incorporating ESG criteria into research will lead to better investment performance.
Stocks that score high on environmental, social and governance (ESG) criteria are also the securities that perform the best, according to research by Colonial First State Global Asset Management (CFSGAM).
“Research conducted by CFSGAM revealed that the top-rated ESG stocks in its global listed infrastructure portfolio outperformed the bottom-rated stocks by more than 20 per cent over a three-year period to May 2010, demonstrating the connection between ESG factors and performance,” CFSGAM chief executive Mark Lazberger said at the launch of the company’s responsible investment report yesterday.
“It is not just about improving the world; it is about risk management,” he said. “As a fiduciary, it is our responsibility to make the best possible investment decisions on behalf of our clients,” he said.
But Lazberger acknowledged that ESG management was harder to incorporate for passive and index investors who have to hold all the companies in an index and, therefore, cannot leave out companies that scores badly on ESG issues.
“That is the big challenge. If you are a large index investor, so you hold all the stocks that are in that index, ESG should be as important, and sometimes more important, because you can’t sell out of stocks,” he said.
CFSGAM head of sustainability and responsible investment Amanda McCluskey said it would still be possible to engage with companies to influence their policies, although often passive managers lacked the resources to undertake these activities.
“We’ve got some small passive funds that we run internally for clients and, because they are run by a team that is also active, those passive funds also get the benefit of the engagement that we do throughout our active portfolios,” she said.
“At the end of the day, what we do is engagement with the underlying companies, so a house that does just passive investment, I’m not sure where they get the resources to do that,” McCluskey said.
Many JustInvest clients have given themselves peace of mind by choosing to invest according to their ethics. To learn more about investing ethically in your Super and Investment portfolios, talk to us today.
