After the financial crisis, trust in financial markets still needs to be restored. There is now a strong focus among UK and EU policy-makers on using sustainable and green finance to rebuild trust and create holistic return opportunities.
This session outlined how Hermes engages with reform agendas and set out how the industry can help to deliver reforms that are workable, meet the ‘public trust test’, and can help deliver a sustainable future in which holistic returns become the norm not the exception.
|Ingrid HolmesAssociate Director – Policy|
Patrick Marshall, Head of Private Debt & CLOs and Christian Mankiewicz, Vice President, Hermes GPE’s Private Equity team, addressed how their businesses consider ESG across Private Debt and Private Equity decisions and why careful ESG consideration and risk management is not just the trendy thing to do, but makes good commercial sense.
|Christian MankiewiczVice President, Strategist – Hermes GPE|
|Patrick MarshallHead of Private Debt and CLOs|
|Jennifer BandHead of Client Solutions – Private Markets & Strategy|
There is an irrevocable link between ESG factors and corporate performance. The integration of ESG factors is not—nor has ever been—separate from so-called mainstream investing. So what constitutes proper ESG integration? Shouldn’t it just be about better risk-adjusted returns? We believe the thorough integration of ESG analysis is an essential part of the investment process to identify positive change within companies. Essential to this analysis is the ability to assess the trajectory of corporate behaviour. In order to do so, investors must make use of dedicated tools and corporate engagement a part of that ESG integration.
|Mitch ReznickCo-Head of Hermes Credit|
|Louise DudleyPortfolio Manager|
Emerging market (EM) companies are typically perceived as laggards in sustainable practices, with corporate interest in ESG considerations generally lower than in developed markets (DMs). This is true both at an institutional and corporate level but things are changing. New societal and cultural norms already put companies in a position where they have to reflect their membership of large communities. In China, for instance, a new pollution tax emphasises the government’s determination to minimise damage to the environment caused by industrial development. In India, tax of 2% of revenue goes to social projects. There is a growing sense of corporations’ responsibility to society at large.
However, often corporate social response statements are at best statements of intention, rather than offering any profound analysis of a companies’ impact on society, the environment and solutions to improve the status quo. We believe a deep assessment and engagement can help management make the case for spending towards improving stewardship is justified and important.
|Dr. Christine ChowDirector – Engagement Hermes EOS|
|Gary GreenbergHead of Global Emerging Markets|
Investing for impact is all about engaging with companies to bring about change that has societal benefits but also creates value for long-term shareholders. This involves identifying businesses that have untapped potential to positively impact the global development agenda and therein support achievement of the Sustainable Development Goals. The team explained how they identify relevant companies, how they seek to bring about change and how this approach can bring benefits to all.
|Hamish GalpinHead of Small & Mid Cap|
|Will PomroyLead Engager Responsibility Office|
|Kimberley LewisDirector – Engagement Hermes EOS|
Today, the majority of power generation investments in developed countries are in renewable energy; organic agriculture is one of the fastest growing segments in food; research in genomics promises one of the biggest revolutions in medicine, starting with potential cures for cancers. These are just a few examples of exciting opportunities where impact investors can find equities that offer the potential of market beating returns from innovations that have a positive impact on society and the environment.
The UN Sustainable Development Goals offer a coherent and objective framework to identify the opportunities presented by those long-term, secular transitions taking place in society. A structured, disciplined approach is necessary to being able to translate these global aspirations into tangible investments that have a genuine positive impact on the environment and society, as well as being great emerging growth opportunities.
|Maxime Le FlochInvestment Analyst|
|Tim CrockfordPortfolio Manager|
Hermes Real Estate – Places not Buildings
Hermes has adopted a long term, responsible approach to working in partnership with the public sector to create great places at King’s Cross, Paradise Circus in Birmingham, NOMA in Manchester and Wellington Place in Leeds. Each estate combines a kaleidoscope of heritage, culture, great infrastructure, public realm, mixed residential, commercial and educational uses and community engagement at their core.
As a result, we have been successful in creating places which attract and retain talent, in turn securing global capital to secure employment and long term, patient investment capital.
Apart from delivering an attractive financial return to our investor, we also secure a positive impact upon the environment as well as society at large; by treating great places and engaging with the wider community we are creating a ‘meaningful city’ and a sense of belonging for the citizens at large in Birmingham or Manchester, recreating the heritage and pride in these great cities as globally recognised places.
|Chris TaylorHead of Real Estate & Private Markets|
|Robert WallPartner – Infrastructure Investment|
Fixed Income investors, by their nature, tend to be longer term thinkers. As such, many aspects of sustainable investing should be a natural fit for them. It is therefore surprising that ESG integration and engagement have traditionally been more prevalent in the equity domain than fixed income.
Hermes Fixed Income, however, uses a long-term approach, which aims to deliver robust investment returns and requires ESG integration. Our ESG analysis ensures that responsibility is embedded in all of our investment decisions and philosophies. In this session, we evaluated our approach to ESG integration, drawing on examples from across the fixed income universe.
|Andrew JacksonHead of Fixed Income|
Effective Stewardship and ESG integration requires fund managers and engagers to have access to fundamental and insightful responsibility data and analytics. Hermes is developing a range of ground breaking tools providing our investment and engagement teams with an evaluation of ESG performance and the level of engagement activity and progress made to mitigate the risk and exploit any opportunities. In this session we showcased our Carbon tool which was launched in June and the Portfolio Snapshot tool which is currently under development. We also described our plans for future developments.
|Nikolaos DimakisQuantitative ESG Developer|
|Leon KamhiHead of Responsibility|