Portfolio manager explains how ESG will become even more prominent
An ESG portfolio manager believes it is inevitable that the strategy will eventually play a fundamental role in all investment decisions.
Patti Dolan, of SAGE Connected Investing, Raymond James Ltd, remembers when, in the mid-1990s, responsible investment encompassed two “terrible” mutual funds.
Since then the growth and awareness of socially conscious investing, comprising the environmental, social and governance (ESG) criteria, has been rapid and Dolan said the number of reporting methods now available is mindboggling. New figures are due shortly, but at last count more than half of investments in Canada are done with some type of RI screening.
Dolan said she is now able to spend all day analysing a company in different ways, although she usually opts for about six individual methods.
“Screenings will just become how companies are analysed and rated,” she said. “I know DBSR (Dominion Bond Rating Service) and the different rating agencies are now taking into account climate risk and rating companies on this. Inevitably, that is going to be part of how an investment decision is made.”
While governance is a particular focus of Dolan’s, she said environmental issues have become even bigger because of global regulations and the reporting around GHG emissions.
She also highlighted the Paris climate accord which, despite President Donald Trump’s open skepticism, has brought more stringency to the reporting process.
She said: “The UN had the Paris climate agreement and from that there was a recommendation called the Taskforce for Climate Disclosure on Financial Reporting, which was headed up by Mark Carney (Bank of England governor) and Michael Bloomberg (billionaire media owner). So the reporting now has more depth to it, and companies are being rated for credit rating, and risk profiles are all done around emissions.
“Environment is really, really important. For an investor like myself, it becomes a fiduciary duty to take that into account when looking at a company.”
Dolan believes that the global nature of the accord, despite the fact it is still voluntary, will negate a lot of Trump’s rhetoric and that companies should step up individually and realise it makes sense financially and socially.
She said: “It’s going to be interesting. [Paris] is still voluntary but I think when the cost of capital increases, companies themselves will start paying attention. I don’t think companies need to wait for regulation to address issues – they are stepping up and realising this is a trend. And if they want the cost of capital to remain reasonable, they are going to have to do the reporting that is required.”
She added: “A lot of US companies are globally based too, so if they are doing business overseas, they have to be able to do business legally. It’s global now – it’s not isolated to individual countries.
“They have to look longer term and look at what they bottom line is, and politics changes every four years. There are not too many four-year business plans out there.”