Regulation in Europe has pushed asset managers there to integrate “double materiality” into their decision making, but it is also a critical concept for U.S. based managers when evaluating investments, Lucas Schoeppner, manager of sustainable investment stewardship at Wespath Benefits and Investments, told a panel at Sustainable Investment Forum North America in New York on Sept. 24.
But double materiality — or how a holding is affected by sustainability issues, and how its activities impact society and the environment — is a term that allocators such as Chicago-based nonprofit Wespath have not been hearing, Schoeppner said.
“I don’t hear that term used that much in our conversations with U.S.-based asset managers,” Schoeppner told a Sept. 24 panel at Sustainable Investment Forum North America. “But what we’re often facing as an asset owner — and we’ve got a calling to be sustainable, but it’s all research based — we’re looking for better returns 20 (to) 30 years,” he added.
The term that Schoeppner said he has been hearing in conversation is, however, systemic risk, which he sees as a U.S. interpretation on double materiality. With asset managers, particularly big ones, “there’s a lot of tension around the idea of only looking at idiosyncratic risk,” he noted.
For instance, a passive manager might look at a coal company for its individual carbon risk, but not its impact on Wespath’s whole portfolio, “which is a problem for us as an asset owner because that coal company is going to screw up returns for the rest of our portfolio,” Schoeppner added.
With the increasing retreat due to anti-ESG pushback, the asset owner — which oversees investments for the United Methodist Church and managed close to $26 billion in assets as of Dec. 31 — has been hearing comments from managers saying they can’t participate in this level of engagement because “this is antitrust,” he said. Still, Wespath is pushing managers on that front — and “even if the data is not perfect,” the allocator will still use it for the sake of managing double materiality risk.
But as “we’re hitting walls with asset managers,” Schoeppner said it would help if more companies reported along double materiality lines in order to help the allocator win its arguments with investment firms who say “that’s not really out mandate to look at impacts our companies that we invest in have on other companies.”
If “companies themselves are reporting those impacts on society and the environment, that would help us make the case to other investors and say, ‘Look, the companies themselves are saying this matters,’” Schoeppner said. This will have an impact on Wespath’s returns elsewhere, and while there may be no easier alternative ways to assess this, “we need you to help us (and) work with us to deal with that.”
“We know investors in CA100+ have been, let’s say, harassed by the House Judiciary Committee (and) things like that,” he added. “But what are we doing? We’re basically trying to have freedom of speech — a little bit of freedom of religion in our case — to make more money, which seems like the most perfect Republican thing. Maybe long term (with) double materiality, we’ll just be like, ‘Hey, this is a part of what freedom to invest looks like.’”
