PANC 2021: What the [ESG] F?

The second day of the virtual 2021 PLANADVISER National Conference (PANC) featured a panel discussing the transformation of sustainable investing over the past decade, as well as key trends in the green investing space that financial advisers should follow going forward.

Anthony Campagna, managing director of integrated financials and impact at ISS ESG, the responsible investment arm of Institutional Shareholder Services (ISS)*, reviewed the path environmental, social and governance (ESG) investing has taken since the first and longest-tenured sustainable mutual fund, the Pax Sustainable Allocation Fund (PAXWX), was introduced in 1971.

Campagna noted that sustainable investing has changed since its inception to expand beyond climate change and environmental awareness. Now, it incorporates a company’s products and services and examines its values throughout the entire human chain transmissions, he said.

A heightened awareness toward social issues has also contributed to the rise of sustainable investments, Campagna noted. As more people and companies focus their attention on diversity, equity and inclusion (DE&I) within the workforce, as well as climate change and sustainable investment funds, more investors are willing to move their assets to ESG investments.

“Over the last two or three years, we have seen a social awakening,” Campagna said. “There is a measurable way to think about the social impact that a company and its products have on the global environment.”

Rather than focus on one aspect of sustainable investing, such as governance, more companies are realizing the elements of ESG investing are interconnected, and each facet plays into one another.

For example, he said, good governance isn’t only limited to how sustainable a company’s investments are, but how committed it is to diversity within its investments and its workforce. Over the past decade, more women are now directors of their companies, and 42% of Fortune 500 companies have board seats that are held by women or Black, Indigenous, or people of color (BIPOC) members, according to research from ISS ESG.

Campagna also discussed the components of ESG investing, and the alpha that comes with sustainable investments. While he said governance has long had measurable components, the measurability of the environmental factor in ESG investments has improved over time. In fact, according to ISS ESG research, more investors in the market are allocating funds to environmental factors than to social or governance factors, and many funds that were once only focused on governance are now directing their attention to environmental and social factors as well, Campagna said.

Campagna warned against companies that greenwash their investments—or distort how sustainable a company’s investments are in order to appear environmentally friendly. Watch out for a company’s sustainability goals, he said. Campagna encouraged financial advisers to ask “Are there measurable goals? Have they changed the products and services bought to the marketplace? Are they involved in controversy?”

*ISS ESG is the sustainable arm of Institutional Shareholder Services (ISS), which owns and operates PLANADVISER.