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INVESTING/PORTFOLIO STRATEGIES

ESG not going away, but a lot of work left — CII conference panel

Environmental, social and governance investing is a “slow moving, unstoppable train,” said Rebecca Fender, head, future of finance, head of the Future of Finance initiative at the CFA Institute, speaking on a panel on next-generation investing at the Council of Institutional Investors' Winter Conference in Washington on Tuesday.

Ms. Fender pointed to a CFA Institute survey that found 73% of surveyed investors, primarily portfolio managers, incorporate ESG factors into their investment decision-making, with a large focus on governance.

Risk management was the top reason cited for ESG incorporation, but a number of survey respondents also cited client demand.

Much of the demand for ESG investing is coming from younger investors, said Chris McKnett, managing director and head of ESG at State Street Global Advisors, speaking on the same panel. Pickup has been slow, however, due to limited data and a lack of clear value proposition, among other hurdles, Mr. McKnett said.

Ms. Fender highlighted three attributes she believes investment management firms need to succeed in the next generation: trust, adaptability and talent.

On trust, Ms. Fender pointed to a joint CFA Institute and Edelman survey that found only 57% of the 500 institutional investors surveyed said they trust the financial services industry to do what's right, and mentioned transparency and disclosure as actions firms could take to build trust.

“People want to know the fees they're being charged, how and why they're being charged them,” along with having access to realistic return expectations, Ms. Fender said.

Regarding adaptability, Ms. Fender said investment managers need to keep in mind what their end clients' objectives are and differences in objectives, for example, for men vs. women.

She pointed to a recent TIAA-CREF report that found women need to save on average almost twice as much men for retirement due to their tendency to live longer, spend fewer years in the workforce and receive lower wages.

On the third attribute — talent — Ms. Fender said that diversity in investment teams is essential to outperform.

She added that there's a “pipeline issue that needs to be thought about,” as the institute has heard from many top business schools that their students are less interested in going into finance.

ESG,