DO YOU CONSIDER ESG FACTORS OR SUSTAINABILITY WHEN YOU BUILD / ADVISE THE PORTFOLIOS / FUNDS OF YOUR CLIENTS?

ESG CRITERIA, something more than green!!

The inclusion of the “ESG, environment, social and governance” criteria, or in other words socially responsible investing, is already a reality in business and project management.  Therefore in the world of asset management and providing advice to clients, it is increasingly more relevant to include these criteria, transmitting to our clients that they are aimed at achieving a better, fairer and more equitable world, having become a factor to be taken into account when making decisions, a new paradigm that needs to be known and which in recent years has become evident in objective data.

After transmitting to the client the object of investing with sustainability criteria and before the client starts doubting our abilities to advise in the face of such a considerable and worthy purpose, our main task is to inform him on how the incorporation of these criteria can benefit the return on the portfolio and not just end up as an attempt to wave the flag of justice and fairness in the world, which I do not believe is our role as professionals in investments.

And our first task is to avoid the distraction of the concept SUSTAINABLE.  It is not a question of being GREEN, PHILANTHROPISTS, etc. which might imply a sacrifice in the return on investment portfolios, but instead to make it quite clear that being sustainable or implementing “ESG” criteria is merely applying FUNDAMENTAL ANALYSIS, to which those factors are added.  Recent studies made by Harvard University and the London Business School have shown that companies which implement “sustainability” criteria in their fundamental analyses obtain a far higher return than those which do not include it, the reason being that those criteria MITIGATE the risks (payment of their obligations, etc..) creating value for their investors.

The “ESG” criteria when investing ceased to be implemented during the years of financial recession, when the most important issue was survival.  Until approximately 2014, socially responsible investment was merely a fashion, something anecdotal and with little penetration at international level and far less in Spain.  This low penetration is mainly due to our particular concept of “what is ethical” or in other words we consider the criteria that companies implement in order to be classified as socially responsible are more artificial than effective. If we add to all this the fact that the investment industry in our country mainly focuses on extremely conservative and guaranteed portfolios, it would justify the lower penetration of what is “socially responsible”.

 

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But special mention should be made of the fact that the trend since 2014 has been very positive for the use of these criteria, which is demonstrated by figures like the 25% increase in the number of investment funds incorporating ESG criteria since 2014, and that 1,700 COMPANIES at world level are included under the United Nations initiative for responsible investment and that globally, 62% of advisors say they include ESG criteria as an important factor in their recommendations for investment, concluding therefore that there a need and utility for including those factors in the advice we give.

 

About The Author

MIGUEL ÁNGEL SORIANO SAEZ. Founder and director of CapitalSur Advisors. Independent Private Banker. Qualification: Business Sciences. Member of the European Financial Planning Association No. 4084. Bankinter National Financial Agent No. 4258.