By Adrie Heinsbroek, Head of Responsible Investment Team at NN Investment Partners
The evolution of responsible investing and the integration of environmental, social and governance (ESG) factors looks like it’s being side-tracked by long-running discussions. Discussions among analysts, ratings agencies and other investment industry stakeholders about a “common framework”. According to them, this framework needs to be in place before responsible investing can become reality.
The discussions evolve around the thought that such a framework needs to establish quantifiable definitions of terms like “ESG”, “sustainable development”, “responsible investing” and “impact” before asset and fund managers can use them in describing their strategies and products.
A more pragmatic approach is to simply call it as we see it. One can assess the ESG credentials of a listed company, a bond issuer, or a public works project without a protracted discussion about which terminology should or should not be applied when describing them or investing in them. Just as a study of the laws of aerodynamics is of little or no use in understanding how a bumblebee flies, an extensive and in-depth semantic analysis of an investment opportunity’s projected societal or environmental impact is rarely if ever needed to recognize and act upon its ESG potential.
Society expects asset managers to look beyond pure financial metrics. This doesn’t mean disregarding financial performance. It means maintaining an open and reflective attitude towards an investment’s extra-financial credentials (or its lack thereof) to determine its broader economic relevance.
Asset managers like NN Investment Partners work on two tracks simultaneously. On the theoretical level, we seek evidence that ESG integration works. This is demonstrated in our fundamental, data-driven research carried out in close cooperation with our academic research partner ECCE. On the practical level, we apply our insights and findings to make better-informed investment decisions.
ESG should reflect the current general debates in economy and society, regardless of specific approaches or methodologies. If we keep in mind how ESG is material and how it is relevant, it can make useful contributions to discussions. With topics such as climate change and carbon emissions regularly in the news, it makes sense to keep a keen eye on environmental aspects when making investment decisions.
However, we should never lose sight of the reason for ESG integration: creating value. ESG integration should go beyond mere financial value and extend to social and environmental value. By focusing on the triple bottom line of “people, planet and profit” and by balancing the interests of all stakeholders with economic, environmental and social dimensions, we achieve multiple value creation.
Promoting sustainability, integrating ESG, investing with impact – whatever name we give our responsible investment strategies – it reverts in part back to the 3Ps approach that John Elkington described in the 1990s. We are no longer “cannibals with forks”, but neither do we need vegan academics to tell us what to eat. We just need to navigate through perception and reality. By focusing on the material and relevant aspects of responsible behavior for baseline economics, and by working with the tools, we can walk the walk as well as talk the talk.