Environmental, social and governance (ESG) expert My-Linh Ngo, Head of ESG Investment, Portfolio Manager, discusses the importance of reporting in building a sustainable future through public debt markets.
As many investors will be aware, reporting on ESG, sustainability and impact dimensions is not without its challenges, whether in terms of issues around data, analytics or methodologies. While these are not unique to the fixed income asset class, they do take on an added nuance and complexity because of it. What is included by way of issuers and not included, and what assumptions are made, matters in determining the results. Additional complexity also comes in terms of the level of knowledge and understanding of the dynamics for how different factors interact with each other, assumptions and expectations about the timeframe over which actions lead to impact, or if it is even possible to claim causation. We certainly believe in the importance of providing contextual information and narrative to support interpretation of the results of any analysis that we do in this field.
A holistic picture
Given reporting in this area remains in its infancy – although evolving and improving – we would guide on focusing more on the overall direction of travel rather than getting too preoccupied on specific numbers. This is because the exactness of some of the results can infer a level of certainty which is not necessarily valid. Also, we would advise on considering a range of complementary analytics as taken together, they can signpost to different aspects and build a more holistic picture. While not perfect, and recognising there is room for improvement, we feel these approaches can help promote discussion and progress to make such analysis more robust and informative in future.
ESG industry collaboration commitment
To inform and support our ESG investment framework both at the firm-level, and strategy-level, we collaborate and partner with a number of industry bodies and initiatives whether these are ESG, or responsible investing (RI) focussed, or an area of attention in the case of the industry trade bodies. This includes those with a specific emphasis on the sustainable and impact investing space, such as the GIIN (Global Impact Investing Network) and Pensions for Purpose. Our commitment is to evolve our practices in line with industry best practice, and to actively input and share insights in terms of what this looks like.
ESG itself will remain in the spotlight
We witnessed the increasing scrutiny on ESG and RI across regions last year, as well as increased polarisation and politicisation of the subject matter. Increased ESG regulations have contributed to this scrutiny, as they have added a level of technicality and highlighted the complexity of how ESG/RI can be applied. We believe that 2023 will see this theme continue to play out in the market. While debate and reflection are to be expected and welcomed and it is proof that the ESG/RI field has become mainstream, this needs to be managed constructively and not conflated with other matters. We look forward to the ESG/RI industry continuing to rise above the noise and remaining transparent and responsible in its conduct.