Eastspring’s Head of Sustainability Stuart Wilson also elaborates on guarding against greenwashing.
As a global asset manager with a deep understanding of Asia, Eastspring Investments has a key focus on Environmental, Social and Governance (ESG).
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Stuart Wilson, who joined Eastspring in January in a newly created role as Head of Sustainability, elaborates on the opportunities and challenges in achieving its goal to be a leader in ESG investing. With US$258 billion in funds under management, comprising the assets it manages for Prudential as well as other external clients, Eastspring plays an increasingly significant role, embedding Responsible Investing principles in order to secure a Greener Future.
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Q: Do you think of ESG investing as an art or a science?
Stuart: I think this is where social values intersect with investing. Within the investment world there are a lot of quantitative based assessments, which leans itself to science. In investing you often build a mosaic of evidence in order to make decisions. So, the introduction of values and social considerations – things that cannot be easily incorporated into spreadsheet models and are difficult to value – this makes the scientific process difficult to implement.
However, this does not mean it should not be attempted. On the contrary, investors who do integrate these difficult considerations will have a better process, all other things being equal.
ESG is an absolutely necessary part of the investment decision-making process, and if it's not done properly, then there are very real risks that you may be missing some material indicators on the bona fides of the value of the company.
So, I would lean towards science – it is more like forecasting than fortune telling.
Q: What are Responsible Investment priorities from Eastspring’s perspective?
Stuart: Our aim in Eastspring is to position ourselves as a leader in ESG in Asia.
Some of the key priorities include firstly, making sure that Responsible Investment is core to Eastspring’s identity; secondly, that we have the right product offerings and investment strategies for our clients including Prudential, and thirdly, that we comprehensively integrate ESG considerations into our investment selection and portfolio management components.
We also want to make sure that we are delighting clients with reporting on what we are doing and why we are doing it.
Finally, we want to make sure that we are walking the talk as an organisation, in the way that we treat diversity and inclusion, paper, power and plastic, and in the way we are developing partnerships with people and the communities in which we operate. In that space, we are fully aligned with the broader Prudential ESG strategy.
Q: What are the challenges to ESG investing in Asia?
Stuart: One of the key challenges is the lack of data throughout Asian markets on climate metrics.
Roughly half of the companies in our portfolios actually disclose their carbon emissions. There's another 20% where the numbers are estimated, and then there is a big blind-spot beyond that. And it is a problem that is more pronounced in Asia than in other markets.
The more challenging part is engaging with these companies, encouraging them to set goals and targets, and to develop strategies to meet those goals, and then to deliver on that.
We've actually reached out to over 2,000 companies in the portfolio that don't disclose yet, encouraging them to put some carbon and water numbers in their accounts. These efforts align well with Prudential’s target to engage with companies that are responsible for 65% of the absolute emissions in its investment portfolios.
Q: Given the lack of data, how can an investor guard against green washing?
Stuart: The good news is that some of these issues around data are starting to be solved.
We know that accounting data needs to be audited, and there are standards that companies need to follow. With all things ESG, that's not necessarily the case today. The verification of the numbers is quite honestly not performed to the same quality as a full audit of accounts is, and the data is usually late, light, and hard to compare.
As investors, we are acutely aware of the allure of a company’s greenwashing, which has to be considered when doing our analysis. Quite often, it comes down to going beyond the 30-page colorful document with rolling green hills and wind turbines, and delving into the strategy documents, making sure that there is accountability behind them.
We also look to see if there are time-bound, specific C-Suite Key Performance Indicators and remuneration outcomes behind sustainability goals, because we understand that this improves the likelihood of achieving their strategies to transition to a low-carbon world.
Q: Are ESG Funds becoming a larger part of Eastspring’s total portfolio?
Stuart: We are seeking to integrate ESG considerations into our investment processes for as many of our funds - and all of our Prudential funds - whether they're named ESG Funds or not. And the pipeline for labelled sustainable products is also very, very strong. So, we are working on the launch of some exciting new products over the next 12 months.
Q: In terms of risk, how does an ESG portfolio compare with the overall portfolio?
Stuart: It's fair to say that if you're an investment professional who is cognisant of risk management, and you are considering material ESG risks that others aren't, then overall, you should be able to decrease the portfolio risk by considering sustainability.
This is particularly the case with long-tail risks that don’t show up in traditional risk metrics until the event occurs. There are some ESG portfolios that have a wide array of exclusions, sometimes of entire industries and sectors. This limits the investible universe.
We believe exclusions should be arrived at as a last resort, after other avenues, such as engagement, have failed. We work very closely with Prudential colleagues to align and adopt the Group’s Just and Inclusive Transition approach into the investment processes.