“If a company says it implements ESG standards, the advisor has to determine what that means to that particular company [and] making those decisions is an active process.” Interest in this information is growing among investors, she said.
Harding Loevner looks for long-duration, growth companies. Pressure can be exerted on these companies informally, through a formal process, or through proxy votes, she added.
“Systematically evaluating the risks and opportunities associated with ESG investing assures that all relevant issues are addressed,” Lernerman said. Research into a company’s practices also can help assure more information is available and transparency is provided for investors.
Having more information means advisors and asset managers can move away from just using negative screens on clients’ portfolios to keep out some companies or industries, to being actively engaged in finding companies that have a positive impact, Vishal Hindocha, director of the Investment Solutions Group at MFS, said in an interview.
“Actively seeking companies that have a good ESG track record results in a better outcome for the world,” Hindocha said. MFS is a global investment management firm focused on impact and sustainable investing and has $700 billion in AUM.
“There is still a good amount of confusion about how to integrate ESG into a portfolio; there are a lot of different forks in the road that an investor can take,” he said. “The advisor and investor are reliant on the skill of the asset manager. This is a fast moving field and finding information can be a challenge to a retail investor.”
Because of these factors, advisors and the active asset managers can play a tremendous role for the client, Hindocha said. “ESG portfolios began with negative screening but, now, the advisor is doing a disservice to the client if he or she is only doing negative screening.”