Why the recent market volatility is driving asset managers towards ESG
David Czupryna, Head of ESG Development at Candriam, explores how the pandemic has shone a light on the merits of ESG investment strategies and why it could be a catalyst for more integration among fund operators.
Sara Benwell POSTED ON 10/19/2020 11:37:37 AM
Sara Benwell: How has the recent market volatility impacted your investments and your wider business?
David Czupryna: We are heavily invested in ESG strategies across asset classes where, in some cases we run strategies with more or with less ESG integration.
We have seen a widening of the spreads between ESG and non-ESG. Of course, ESG can mean different things to different people and there are many ways to implement it, depending on the strategy and the asset class but overall, this crisis has shown the merit of ESG.
It isn’t just about being underweight this or that sector, rather, it was more that the market punished companies more heavily who had badly managed their human capital or who had very tight supply chains compared with the better managed companies.
“Overall, this crisis has shown the merit of ESG.”
These are typically factors that we look at as part of the whole ESG framework or analysis.
There has been a lot of learning that has taken place through this crisis and it has validated our focus to continue widening and spreading ESG in its many forms across our strategies.
Sara: Do you feel that this could be a turning point for ESG where it is no longer seen as an alternative strategy and starts to become more of the mainstream and an expectation from clients or investors?
David: The ultimate litmus test for this will be the recovery, yes there will be one, and if ESG assets are able to continue their good relative performance throughout the recovery, and it has been validated, then we will see integration become more mainstream.
As data becomes more readily available, everyone will be able to access decent quality ESG data. Having some form of ESG strategy will no longer be sufficient to gain alpha from this front.
“The ultimate litmus test for this will be the recovery”
It will become about how you implement that data in your investment processes and where the materiality of ESG is from a financial standpoint. These questions will certainly become more acute as we emerge from this crisis.
Sara: Has the pandemic altered the “war for talent”, the attracting and retaining Millennial and Gen Z talent? If yes, how?
David: It is tied with the emergence of ESG because one clear way to attract and retain talent is to provide meaning to their jobs. What we see is that if it is just about financial rewards, the retention can be more volatile.
“One clear way to attract and retain talent is to provide meaning to their jobs.”
We try to tie this aspect to our corporate purpose, which is to invest sustainably. This is a sure way - especially amongst the younger generations - to make sure that their job makes sense to them and that they want to stay with the company.
Sara: In these times of market disruption, what are some of the challenges to effectively gain access to timely and high-quality ESG data?
David: This has been a very interesting time, because what we needed now more than ever was information on how companies were structured in terms of the solidity and relationship of their supply chains, the mobility of their workforce, their business recovery plans, etc.
“Getting our hands-on S and G data from companies is now going to be a much higher priority than it has been before.”
These were all areas that don’t usually feature that high on the average company analysis fact sheet or dashboard.
We already include these as part of the ESG due diligence. Getting our hands-on S and G data from companies is now going to be a much higher priority than it has been before.
To learn more about how fund operators have adapted their people, processes and technology to the new operating environment - please download our research report here.
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