There are three views of environmental, social and governance (ESG) investing and each view has a different place along the spectrum, said Carly Greenberg (pictured), ESG analyst, Walden Asset Management and president, Basic, speaking at the Sin pays better panel discussion at SRP's 6th Annual Americas Wealth Management & Derivatives Conference 2017 in Boston on June 15.

"One is screening, investing in values and making sure you invest in products and industries you like," said Greenberg. The second view, according to Greenberg, is ESG integration, where you use environmental, social and governance risk and opportunity factors to identify opportunities that might be missed by the cohorts in your investment field because they simply are looking up the SEC filings. "Then there is thematic investing: putting your money in a pool of funds, or a fund, that is thematically working towards a value that you care about, such as green funds and women's funds," said Greenberg.

ESG can be valuable to investors in different ways, according to Manish Vij, director of sales, North America at Stoxx. "Of course, you have investors who are using [ESG] as a feel good investment approach, the kind of investors who have decided that they will allocate a small percentage of their portfolio to ESG," said Vij, who noted that, for these investors, the performance probably takes a back seat. "Then there are investors, which I would say are a little bit more sophisticated, who are trying to use ESG almost as an additional factor, to pretty much tailor the risk and return of their portfolio."

Richard Jory, global head of content, SRP, who moderated the panel, said he would love to believe that retail investors make decisions on the environment and the good of the planet. "I am an advocate but I still don't believe it is the case," said Jory.

When it comes to the whole notion of ESG, retail investors in particular care about were their money is going, according to Hardeep Walia, chief executive officer at Motif. "Today, at the consumer end, people are voting with their dollars," said Walia, who admitted he would not buy a Canada Goose jacket, but would be happy to invest in oil. "The problem is no one knows what ESG is. There are lots of studies that say ESG products may be labelled as such, but they may not be as different other than the fee price. There is a lot of confusion," said Walia. "People are craving simplicity and, when it comes to people's personal values, there are just not a lot of products that cater for that, and that's what we think technology can enable."

Greenberg said she does believe that retail investors care about ESG, but, in a way, that is not about investing. "They are doing it with their consumer dollars, maybe with the charities they invest in, but a lot of retail investors aren't necessarily thinking of their investments as a tool for ESG," said Greenberg. "Another reason why I think ESG hasn't really appeared much in the retail world is simply because there are not that many options," said Greenberg who noted that many of the ESG investors who started in the late seventies and early eighties target the high-net worth institutional market.

Brace Young, partner, Arabesque Asset Management argued that, if you use the tools available to evaluate the risk properly, markets often price on the basis of analysis around company conduct and various different components of corporate behaviour. "We have seen in our quant models that we can outperform the indices," said Young. "People will buy products that outperform. We have built a valuation of companies against a global compact standards of how a company conducts itself when it comes to the environment, human rights, labour practices and corruption, and we found the statistical correlation of companies that behave badly, and that analysis is very highly correlated with somebody that makes a judgement error in the future."

When trying to convince his customers to invest in these personal values asset models, a lot of them came back with the same question, according to Walia. "They all wanted to know how big a discount they would get," said Walia. Motif ended up having to guarantee that, if its clients applied personal values to one of the company's asset models and if it underperformed the non-tilted ESG tilted values by more than 1%, it would pay back all the fees. "It took us needing to do that to assure people," said Walia. "There is conclusive evidence but you have to get over this bias that people have."

"We are trying to convince at least our retail investors, 'if it's good for your soul, it is good for your portfolio too'," he said. "We had to take on this risk to really convince our retail investors that we put our money or our values where our mouth is. We did this because we think the data is pretty conclusive," said Walia.

The securities industry is not engaging its clients for the very simple reason that, they don't have the product to sell to them, according to Young. "If you go to a large securities firm, scale matters," said Young. "The industry is still a product pusher. Everybody is trying to figure out, what can I sell a lot of and scale."

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