Added benefits from a mainstream ESG ethos
Maria Nazarova-Doyle, Head of Pension Investments & Responsible Investments, Scottish Widows, discusses the benefits for fund operators that exist with an increased ESG presence.
Fund Operator Editor POSTED ON 12/13/2022 11:18:49 AM
The benefits from an increased uptake of the ESG ethos are legion but not necessarily simple, says Maria Nazarova-Doyle, Head of Pension Investments & Responsible Investments, Scottish Widows.
"“It’s valuable for companies to adopt the ESG ethos. This is particularly true if you look at businesses where their purpose drives their strategy."
At a recent Clear Path Analysis event, “ESG Investment Leader 2022”, Nazarova-Doyle joined industry peers from Foresters Friendly Society and AXA Group to discuss what values companies can gain from the ESG methodology and embracing its idea.
“It’s valuable for companies to adopt the ESG ethos. This is particularly true if you look at businesses where their purpose drives their strategy,” said Nazarova-Doyle. “These purpose-driven businesses are more likely to be successful and sustainable, generating long-term value.”
This comes in a variety of ways; most importantly, a purpose-driven business, such as one that inhibits the values of ESG, is likely to have higher staff retention. For instance, millennials who have strong connections with the purpose of their organisation are 5.3 times more likely to stay.
One of the largest factors to back up Nazarova-Doyle’s point was a recent analysis of so-called purposeful companies by the Corporate Board/EY Global Leadership Forecast, which said that these self-described purposeful companies outperform the stock market by 42%.
Part of the bigger investment picture
Nazarova-Doyle said she wanted her company’s portfolio to not only be sustainably invested, but generally well-invested too. “We describe our approach as ’responsible investing.’ We have to define these terms for ourselves because industry standards don’t yet exist, which is a shame. But businesses know what they need to do,” she said. “Treating workers well creates a happier, healthier, more motivated workforce, which reduces turnover costs and increases productivity.”
"Businesses are more likely to receive support and become embedded in society if they treat their communities well."
This is seen in a recent Marsh McLennan report, which specifies how ESG values are important to many workers. “By 2029, the Millennial and Gen Z generations will make up 72% of the world’s workforce, compared to 52% in 2019. These generations place greater importance on environmental and social concerns than their predecessors do – and will expect more from employers on these issues.”
The same ethos is seen when it comes to the treatment of other stakeholders, such as local communities, Nazarova-Doyle said. “Businesses are more likely to receive support and become embedded in society if they treat their communities well. It also reduces political pressure. Environmental care – like reducing carbon emissions – is also financially relevant.”
ESG as the only option
Nazarova-Doyle said that, for her, the only question is why not ESG? “You want to be an investable company; you want to be attractive to clients. Customers are more discerning now about things such as supply chains – both on the business-to-consumer side and the business-to-business side. We’re only moving in one direction.”
"Somebody somewhere can always find a fact sheet from one of your funds that wasn’t phrased in quite the right way.”
When asked about the potential risks of greenwashing, Nazarova-Doyle agreed with fellow panellists that it was a pressing issue that must be taken seriously.
“I have been concerned we’re moving too far in the opposite direction,” she said. “There is such a large focus on greenwashing that it’s difficult to weather the pressure. Somebody somewhere can always find a fact sheet from one of your funds that wasn’t phrased in quite the right way.”
Nazarova-Doyle said that in the pensions industry, “which is sleepy and slow-developing”, pension funds look to one another to make informed decisions. “No one wants to be the first to implement something new. We’ve seen ESG development in the pensions industry. People have started saying they are going net zero by 2050, and then the competition says 2040. Everyone is thinking about how they can improve individually as well as work together.”
Being able to talk about this issue in a competitive way changed the industry, she said. “In the last two years, we’ve seen the biggest changes in the pensions industry, which is over 100 years old.”
“I’m worried we have made it scary for people to come out and say what they are doing, and they won’t be willing to discuss their achievements for this reason.”
However, worries surrounding ESG implementation are important to address. The fear of doing the wrong thing at a time of fraught relations and polarisation could hamper the very goals ESG aimed to rectify.
“I’m worried about the fear of saying the wrong thing,” she said. “I’m worried we have made it scary for people to come out and say what they are doing, and they won’t be willing to discuss their achievements for this reason,” she said.
ESG headlines have seen some negative examples, especially since the recent 2022 US midterm elections, which included Republican leaders specifying actions against sustainability issues and other similar practices.
“If this [fear of discussion] happens – and companies can’t lead by example – we will lose innovation and momentum. We need to be able to do more, and work faster, bigger, and better,” she said.
“You’re either with the programme or you’re not,” she summed up. But whether the programme can maintain its current course is a different problem.
This interview was featured in the Environmental, Social, Governance Investing Europe 2022 report. To read the discussion in full and the rest of the report, please click here.
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