Of course, if you do have more resources, you can buy in external help. And one growth area has been companies that create ESG indices– lists of securities that are rated.
“You don’t need them but MSCI and Sustainalytics are both very good,” she says.
However, there are good and bad ways to use these tools. If you use them to help construct a better portfolio, that’s great. But the notion of using it to create simple exclusions is to some extent missing the point.
“I don’t believe you should just use the external index to reduce your universe. It’s not only about excluding the worst securities but also about understanding what the risks are in the company that you are investing in,” she said.
In a similar vein, she doesn’t believe you need to exclude entire sectors as there are potential investments in each one.
Perfect opportunity
Of course, there are many investors who still do not care about ESG: they want managers to have the greatest freedom to generate returns. However, according to research, the millennial generation of investors are all much more sensitive to ESG issues, and that is one of the drivers of this trend.
It is likely we will see more and more institutional investors requiring ESG, and then private investors will continue that trend until it dominates the market.
Platan believes that fund managers should see these developments as a chance to improve what they do. She views ESG as an analysis of a whole set of strengths and weaknesses a company can have that are not covered by a traditional investment process.
“I want to invest in a manager who sees using ESG as an opportunity,” she says. “I don’t understand why you wouldn’t take into account these risks as you would any other risks when you analyse companies.”
It seems likely that those fund selectors who are not able to create ESG portfolios of all types will lose clients; and fund managers who ignore the trend will lose assets.
So, if you’ve not done so yet, now would be good time to start thinking about making the move to ESG.
