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U.S. withdrawal from Paris climate change accord seen as ‘a gift,’ experts say

Panelists say pension funds should apply ESG as opportunity management

Cindy Rose said the president’s action has ‘stirred a debate’ on ESG.

Environmental, social and governance investing should be part of opportunity management, panelists said during the Global Future of Retirement conference in New York late last month.

The U.S. decision to exit the Paris climate change accord could turn out to be "a gift," some experts contend.

President Donald Trump's decision to withdraw from the pact made at the 2015 U.N. Climate Change Conference resulted in an immediate uptick in terms of inflows into low-carbon funds, said Cindy Rose, head of responsible investing-stewardship at Aberdeen Investment Management. "The (president's) decision was not popular and has stirred a debate," Ms. Rose said.

Fiona Reynolds, managing director of U.N. Principles for Responsible Investment, said the U.S. withdrawal is ​ disappointing, but the rest of the world will continue to move forward, "especially now that China will step up and work with the rest of the world."

Ms. Rose and Ms. Reynolds were members of an ESG-focused panel at the conference, which was sponsored by Pensions & Investments.

Although investing based on environmental, social and governance factors has matured, speakers said misconceptions about ESG might still reduce the opportunity set.

Jens Peers, chief investment officer, sustainable equities and fixed income at Mirova, a subsidiary of Paris-based Natixis Asset Management, said up to 70% of asset owners he meets would consider allocating to private equity if they had a good ESG option.

And even though many pension funds are now more sophisticated at incorporating ESG into their investments, executives can still do more, conference attendees heard.

Ms. Rose said that for many managers, ESG is often about reputation boosting and marketing, and doesn't go to the heart of what the risks are. "As investors, we need to be pushing to be better risk managers," she said.

Ms. Reynolds added: "Asset owners set up an ESG mandate, but that's where it stops." Many pension fund executives are not going to monitor ESG risk after awarding the mandate, she said, and ESG is not going to be embedded into their investment process. They are not asking their managers for evidence of how they are the managing ESG in the portfolio, she added.

However, Ms. Reynolds recognized some asset owners have constraints, so organizations such as PRI began to build tools to help with the work of ESG.

Because it is not easy to assess ESG risk in isolation, it needs to be incorporated holistically into the portfolio rather than treated as a separate area of investing, the panelists argued.

For investors with a 50- to 60-year investment horizon, it is important to start looking at what the environmental and social problems will be and address them now, speakers said. "The idea that climate change in this time horizon will not affect (me) is nonsense," Ms. Reynolds said.