For MSCI, which has more than 700 ESG equity and fixed-income indexes that now have in excess of US$62bn of AUM benchmarked, their ESG revenues represent the fastest growing business segment. Highlighting matters, second quarter operating revenues reported by MSCI this August for their ESG segment saw a $13.7m increase, which was driven by higher ESG ratings product revenues.
Candriam, part of New York Life Investments and a pioneer in the area of SRI for more than 20 years managing around €102bn (at 31 December, 2016) in sustainable investments alongside capabilities in equities, fixed-income, alternative and asset allocation, has a team of ESG analysts who score and analyse each constituent in the relevant benchmarks (equities and fixed income) for their ESG-themed funds.
In 2015 and 2016, the firm’s global equities strategy performed in line with the benchmark, by being ahead in 2016 but slightly under the benchmark on 2015. To date this year the strategy has slightly lagged the index benchmark, especially with some US stocks performing strongly to which Candriam was under-exposed given its relatively lower ESG scores.
Candriam’s global head of consultant relations, Fawzy Salarbux, said: “Over the long term, we believe that our ESG approach is able to identify the relevant risks and opportunities within the universe to enable our strategies to prosper.
“Over the last five years, we have added value over the reference benchmark,” he added. “For ESG-themed funds, it is crucial to view performance with a long-term horizon as some ESG themes can take time to play out.”
Candriam’s sustainable emerging markets strategy has outperformed significantly over the past five years given its focus on quality stocks with strong and durable growth profiles. This year to date it has delivered strong performance, mainly based on an increased exposure to quality cyclical stocks, added to a strong stock selection (e.g. in utilities, technology and healthcare sectors).
“We run a high conviction, actively managed fund with relatively low turnover, aimed at generating superior long term risk-adjusted returns,” noted Salarbux, who studied at the London School of Economics.
Compared to 10 years ago, it is clear that ESG has become mainstream. And, with many large institutional investors publicly committed to integrating ESG factors into their investing and the UN-backed Principles for Responsible Investment signed by more than 1,500 investors and managers (representing c.$60trn in AUM), it would seem ESG investing is set fair. This is notwithstanding that not all ESG strategies will suit all investors.
