Environmental, social and governance matters have become a lightning rod for controversy, particularly from conservative politicians, but most asset owners are committed to learning more from their consultants.
Oliver Kunkel, Zurich-based partner at PPCmetrics, noted that since the consulting firm has no “political agenda,” the company is perceived as an entity that can approach the topic with neutrality and objectivity. “This is very much appreciated by our clients, who frequently approach us (for) ESG matters,” he said. Such topics range from how to compile exclusion lists of companies to the integration of ESG into the investment approach and ESG reporting.
Greg DeForrest, executive vice president and head of fund sponsor consulting at Callan, said his clients fall into one of three camps with respect to ESG issues: the adopters, the haters, and the “cautiously interested” — with the latter group being the most predominant. “Over time, (this latter group) will continue to receive education and develop a more solid opinion on it,” he said. “As is the case with most issues, the truth typically lies in the middle. And I think that’s probably the way the ESG story will continue to play out.”
Callan had $4.7 trillion in worldwide institutional assets under advisement as of June 30, down 1.9% from a year earlier, and occupied the No. 2 spot in P&I’s ranking of largest consultants.
An increasing number of asset owner clients are actually becoming hesitant to use the ESG acronym, said Leah Emkin, chief client officer at Wilshire Advisors. “While material issues that can impact long-term returns remain top of mind, the polarization of ESG influences how investors are approaching conversations about it,” she noted.
“That said, our approach to working with clients on sustainability matters has been minimally impacted,” Ms. Emkin said. “Wilshire continues to focus on meeting its clients where they are and ensuring that investment decisions, ESG-related or otherwise, align with each client’s broader goals and objectives and uphold their fiduciary obligations.”
While many of Russell Investments’ clients place a “high premium” on such issues as sustainability and diversity, they are still in the “education phase” rather than in the “implementation phase,” said Albert Lim, senior consultant.
“They are asking how ESG can add value to their portfolios and what risks it entails,” he said. “But given the economic and geopolitical backdrop, ESG might not be as urgent to some clients.”
Meketa Investment Group assists clients in understanding different approaches to sustainability, including focusing on integrating material sustainability financial risks and opportunities, seeking investments that also offer impact on a given environmental or social themes, and investing in products for socially responsible ends that do not include a performance expectation to meet or exceed a market beta, said Sarah Bernstein, managing principal and head of sustainability.
“Some pension funds have specific requests, for example how to respond to ESG and/or anti-ESG legislation; provide analysis on options to address climate risks and opportunities; or address diversity, equity and inclusion concerns,” she added.
