On Investments

What’s the biggest risk for ESG investing? Ignoring it

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Investment professionals and true believers gathered in New York to explore investment opportunities in this growing space

When thinking about ESG — environmental, social and governance — investing factors, try to just think about it as investing.

That’s the general message coming out of the InvestmentNews ESG & Impact Forum at the United Nations in New York on Thursday, where nearly two hundred financial advisers and investment managers gathered to discuss the investment opportunities in this broad and growing market.

“It’s not ESG investing, it’s just investing done in more meticulous, conscious and deeply analytical ways,” said Erika Karp, founder and chief executive of Cornerstone Capital, during her opening keynote presentation.

The message was echoed throughout the morning sessions by driving home the point that the biggest risk when it comes to ESG investing might be ignoring the space.

“Think of ESG as another lens on top of traditional investments, and if you’re not using it, you will be at a disadvantage,” said Brett Wayman, vice president of impact investing at Envestnet.

Mr. Wayman, who participated in a panel discussion that focused on making sense of ESG ratings, said just because the ESG research data is not yet perfect, it’s no reason to bypass it.

“Find a data set and know what each data provider and data set means,” he added.

Dozens of ESG data providers are analyzing and rating companies and funds, which means more work for financial advisers and investment managers — a reality that’s not likely to change anytime soon.

“Read the prospectus; we all have to do that in-depth research,” said Nathalie Wallace, global head of ESG investment strategy at State Street Global Advisors.

“There is a movement coming from Europe to better define ESG, and there are better standards being promoted,” she added. “Keep in mind that ESG is not one umbrella, there are many ways of reaching your clients’ objectives.”

Key to shouldering the research on how an ESG investment is defined is watching out for “green-washed products,” according to Hendrik Bartel, chief executive and co-founder of Truvalue Labs.

“There are the box-checkers that are looking at the top-line number and are relying on one number without understanding what’s underneath,” he said. “The really cool thing about ESG is it’s in the eye of the beholder.”

Mr. Wayman added that advisers can avoid becoming overwhelmed by all the non-correlated ESG data and ratings by thinking of it along the lines of traditional analyst ratings.

“It’s not the ratings agencies’ responsibility to have consistencies. They’re all doing their own research,” he said. “It’s each investor or investment firm’s responsibility to comb through the ratings. The idea is to interpret it.”

Film festival

InvestmentNews kicked off its inaugural ESG & Impact Forum with a film festival on Wednesday evening in New York at the Helen Mills Theater, featuring 10 short documentaries focused on many of the U.N.’s sustainable development goals.

The films featured individuals and firms that are applying community-based solutions to issues such as water purification, sustainable agriculture and gang violence, among others.

“When we talk about impact investing, it’s a big hairy subject. We need tools to show people the impact of their investments,” said Max Mintz, partner at Common Interests Financial. “By showing the films and sharing the stories of what our money has done, we can dramatically increase the reach of impact investing.”