ESG issues are now at the forefront of investors' concerns, SG - Part 2

In the second part of an interview, Denis Childs (pictured), head of positive impact finance and environmental & social advisory at Societe Generale, speaks about environmental, social and governance (ESG) investing getting bigger and more important and why partnerships can provide a competitive edge in the market.

The way investors look at ESG is different these days and environmental and social issues are now at the forefront of investors' concerns, according to Childs. "This has changed the way investment processes work and how portfolios are built," said Childs. "This means that product providers had also to adapt their financial models to respond to new challenges and needs."

Although some investors are aware and using sustainable products to achieve their investment objectives, and some markets are also driving increased activity, ESG is not mainstream and remain marginal, according to Childs. "Traditionally, most of the activity around these products came from Northern European countries, but this is also changing, and we see a number of markets, such as Italy, increasing the use of these products, and this is also very important to promote this segment," he said.

Although the main providers of ESG products are the biggest investment banks, the number of providers and distributors will also increase, according to Childs. "We have seen a similar pattern from an investor perspective," he said. "In the past, these products were transacted by corporations and other institutional investors but today we see more and more retail investors asking for these products as there is a better understanding and investors want to align their investments with their social values and they also want to know where their money is being invested."

According to Childs, we are still at the beginning of a "very big story" and it is difficult to say how the competitive landscape will develop. "However, those players that have entered this segment at an early stage will have an edge over other market participants," says Childs. "If we don't provide good products that deliver to the end investor, they will not invest, so it is in the interest of product manufacturers to capitalise on their expertise to offer good products, strategies that deliver returns and strong counterparties.

"However, it is also equally important that we develop this segment across the three pillars and not just one," he said. "So it is imperative that we develop products beyond green bonds. We also need a consistent framework across markets and regions, and converge around transparency in relation to methodologies, what is ESG."

The recent convergence between positive impact and green bonds shows that, in order to be competitive, product providers will have to be quick and respond to the demand from investors. "That's why it is so important to have a co-ordinated effort from the banking and asset management side of the business," said Childs. The bank is also working on origination to contribute to the emergence of new business models and finance to tackle "smart cities", food security, energy efficiency, mobility, new healthcare, new education, etc. and will be eager to bring these new assets classes to asset managers and asset owners, according to Childs.

"As a global bank, SG has the capabilities and expertise to enter this segment at an early stage and this is something we did consciously as we saw that this would not only be a key financial segment going forward, but it would also open up opportunities for our investment bank and asset management.

"We have also a dedicated team with strong knowledge across the board including financial risk and reputational risk," he said. "We are very well positioned to capitalise on any opportunities that arise, and we will continue to invest in building our team and capabilities to respond to demand."

SG is in the process of building "a comprehensive range of products" to provide quality assets to its clients. "Our partnership with Finvex is based on the quality of their indices and we will seek more partnerships if we think they will add value to our proposition," said Childs. "We don't just want to build products, we want our products to be successful and deliver to our clients."

There are 170 structured products worth just under US$1bn linked to Finvex indices listed on the SRP database, of which 168 are live.

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