At Nikko AM we believe environmental, social and governance considerations (ESG) are key to creating future value for our clients. Here we discuss responsible investing, explain how we approach it at Nikko AM through our ESG policy, and we share things to consider when evaluating fund managers you may choose to invest with.
Understand how your fund manager approaches responsible investing. You won’t get this through just a rating.
As in many industries today, the financial services sector is no stranger to the rise of socially conscious, environmentally aware customers. Responsible investing has become an area of much discussion, with different interpretations across the industry. While it’s good that there is more data available, it’s not always standardised, and when paired with an increasing number of rating systems, it can be rather confusing.
A common methodology that many firms are employing is ESG - an investment policy that considers the Environmental, Social and Governance impact of the companies included in managed funds. We've created a simple guide to help you learn more about ESG investing - you can download it here.
Whereas ratings are often limited to the published data available and rules based, ESG is a more holistic approach that requires in depth understanding of companies and investments that comprise a fund.
Having a more in depth understanding means not just looking at how a company is catagorised or which sector it is in but also understanding the types of activities they do and don't perform, for example, we specifically look at activities related the following categories:
If understanding what companies do and not just how they are categorised is important to you, then in addition to the ratings take the time to research funds you're investing in and understand the investment approach.
ESG is not about making one-off exclusions to our funds, but it is part and parcel of a holistic analysis we do to ensure that, as a company, we make strong long term investments.
Ask: “Am I with a fund manager who's thinking about these things? If not, why not?"
Companies can achieve a high rating by simply ticking the right boxes to achieve the requirement of the rating system. With rating systems alone, you can't see what specific criteria have or have not been met.
For example: Are activities such as off-setting carbon emissions and planting trees enough to meet your personal criteria for environmental responsibility?
Think about how you want to invest - your goals and values - and look for funds (and fund managers) that align with this. This area is relatively new and is evolving fast, so do your research.
There are some very important benefits of working with a fund manager who has a responsible investment approach:
