ESG is important because if you’re not looking at ESG factors, non-financial factors, you’re missing half the picture.
I would say that 10 or 15 years ago most people were skeptical that these non-financial factors might have an impact on share prices or bonds, and what people have begun to realize is just how important these factors are.
When it comes to investing not everything that counts can be counted, so things like culture, human capital, innovation, organizational health, speed of decision making – these are all critical aspects of the long-term viable success of the business and yet you will not see any of that within traditional financial reporting.
We want to make sure that in every security that we look at and every portfolio we manage, that we’re in addition to the traditional financial metrics considering all aspects - environmental, and social, and governance within that analysis. However you do that, it produces the outcomes that we require.
I’d like to think of it like the side view mirrors in a car. You wouldn’t drive without checking your side view mirrors. It’s incremental information and it creates opportunities for you and it helps you manage risk.
We’re all looking at ESG more explicitly these days because ESG factors are increasingly important to the market. We’ve got growing environmental issues, problems like climate change which are increasingly being presented as potentially systemic financial risks. They will impact financial markets. And you’ve got growing social issues actually associated with the climate change like migration that will have big social economic implications.
ESG is important to what we do. It’s not just a fiduciary duty but for us it also makes sense, so for companies that actually focus on ESG factors, they tend to have much higher and more sustainable returns.
At the end of the day, you are tasked by your clients to be a good steward of capital but also generate risk adjusted returns for them.
We’re active owners, we’re not activists. And so when we think of active ownership and engagement, what we’re often trying to do is just trying to make a slight improvement so we’ll look at the business that we already think has got very, very strong credentials.
The engagement or dialogue we have with companies tends to be, sort of, based around two areas. It’s either engagement for insight – you actually want to better understand the business so you better evaluate the risks. But there’s also engagement to facilitate change.
Once we become owners, then we believe strongly that owners have responsibilities and we have a responsibility to continue to engage with this business, to make sure that the business is adequately dealing with the new challenges that are coming up – to improve disclosure, to change their practices, whether those are environmental practices, social practices…
So there’s a big debate amongst investors over the power of divestment and engagement. The problem with divesting is that you lose the power to influence companies.
I think divestment is a pretty old-fashioned approach to share ownership.
It’s a partnership and we get to engage in it. And it’s a privilege to be able to affect the outcomes that companies have by making a difference.
I think that RBC global asset management is a leader in responsible investment. We have a variety of tools and resources that are embedded in the investment philosophy and processes across the investment teams. We report to real gold standards like the UNPRI system or you can see that through the reporting that we do at the top of the house to our responsible investment guide.
It’s really important for us that we’re aligned with RBC’s values, that we are supporting the purpose for which RBC sets it out for itself.
When I think about being a purpose-driven organization, I think about RBC’s purpose of helping client thrive and communities prosper. ESG is a big part of that. We do things for short-term gain without thinking about long-term consequences. We are not living up to our purpose. I see ESG as integral part of living up to RBC’s purpose.