What impact does responsible investing have on alpha?
We used evidence to build a case for integrating environmental, social and governance (ESG) factors into investment decision making.
The non-executive board of a leading UK asset owner asked us to assess how the adoption of a responsible investment strategy might affect fund performance.
Asset owners and managers are currently under pressure from both regulators and customers to integrate ESG factors into their investment decision-making process. Regulation on the horizon includes the EU Action Plan on Sustainable Finance, and recommendations from the Task Force on Climate-related Financial Disclosures, which Mark Carney, the Governor of the Bank of England, wants to make mandatory.
Our client did not have an overarching responsible investment strategy, although its asset manager had already developed a number of ESG funds and products. The client wanted us to provide an objective analysis of the likely effects of developing such a strategy; to benchmark its performance against peers and identify gaps; and to recommend a route to becoming a leader in the field.
“The business was seeing a lot of market activity around ESG,” explains Simon Abrams, EY UK & Ireland ESG and EHS Transaction Support Head. “They were aware that their peers were moving on this, that regulations were coming, and that clients were increasingly asking questions. Ignoring it was not an option.”