Today, CCOs face a convergence of issues that need to be aligned across the organization. It is no longer possible to think of ESG in a compartmentalized way. As one CCO put it, “A challenge for us is making sure that what we do with ESG in our funds aligns with what we are doing with ESG across the organization, more broadly.” This may not be just compliance with regulations, but with corporate policy and position, which is even harder to assess and monitor. There are reputational issues to be considered, after all.
The complexities go well beyond the scope of compliance – to risk, underwriting, pricing, etc. But, compliance should have an active and visible role in what is taking place and how to address these challenges.
Not all investment funds are alike, so the assessment of ESG and potential compliance risk have to be addressed in different ways depending on the source of risk. This means aligning a portfolio with a specific benchmark, validating a defined amount of assets with guidelines, and embedding ESG into an active investment, including stock selection, proxy voting, and company engagement.
Ravi Menon, Managing Director, Monetary Authority of Singapore,2 commented, “Portfolio managers and analysts need to be upskilled with the knowledge and capabilities to execute and evaluate sustainability investment strategies. They must develop a keen understanding of climate risk and its various possible effects. They must be able to design innovative ESG scoring methodologies, investment strategies, and product offerings.”