Dan Hanson spent 10 years at BlackRock as a managing director and portfolio manager. During his tenure there he designed and was the sole manager of the BlackRock Socially Responsible Equity strategy, where he delivered top-decile performance for over five years based on a bottom-up, high-quality, long-term investment approach. “I’ve always taken the view that social responsibility, using the pragmatic lens of environmental, social and governance (ESG) metrics as key performance indicators (KPIs), is a way to identify high-quality businesses,” said Hanson, who is now a partner at Jarislowsky Fraser Global Investment Management, a privately held $30 billion AUM investment manager. “Those high-quality businesses can deliver stronger performance and lower risk over time. That’s a proven approach to alpha generation.”
When Jean Rogers presented the idea for the Sustainability Accounting Standards Board (SASB) in 2011, Hanson immediately endorsed the vision and agreed to become a founding board member. “At that point SASB was a vision that recognized the need for some degree of uniformity and standardization of disclosures around ESG issues. Socially responsible investing (SRI) has been around for decades, but the idea of key performance metrics and being able to specifically take stock of the sustainability attributes of companies is relatively new.” To Hanson’s point, the past two decades have seen an explosion in the issuance of corporate sustainability reports (CSRs). Today thousands of companies generate them.
“SASB,” Hanson emphasizes “really was a ‘necessity breeds innovation’ type of situation, where with the issuance of CSR reports using different KPIs for different metrics, it became more and more difficult to separate the noise from the signal, to figure out what was the relevant information to financial performance. The idea around SASB is that transparency and accountability can create a race to the top in terms of positive corporate business practices, for which investors see the value. The challenge is how to assess that systematically across the markets, and therein lies the original vision.”
Provisional Standards Comment Period
“SASB finished the provisional standards for 79 industries over a year ago. Since those provisional standards were issued we have been in a period of consultation, with both investors and issuers, asking for feedback on the provisional standards.” That’s Janine Guillot, SASB’s director of capital markets policy and outreach. “The exposure drafts SASB issued on October 2, 2017 propose changes to the standards based on the feedback we received during that year-long consultation process. We are very focused on always obtaining public comment on our standards using a rigorous process that’s transparent and includes opportunities for stakeholder input and feedback. We are now in a 90-day public comment period, and we welcome feedback and public comment, either on topics in a specific industry, or if advisors and other industry professionals want to comment more generically on SASB’s approach.”
Guillot started her career as an accountant, added CFO roles in banking, and then moved into asset management. She was chief operating officer for both Europe and global fixed income for Barclays Global Investors and then was chief operating investment officer at CalPERS, the California Public Employees pension fund, which is the largest U.S. public pension fund. “While there, I led the development of the investment beliefs for CalPERS, which are the principles that guide the management of the investment portfolio.”
The Debate About Returns Is Over
“There’s an explosion of interest in sustainability and ESG. The opportunity and challenge is to do it right. So for an advisor to help their clients manage the landscape of sustainability, and do it in a credible, thoughtful way, is really important,” says Hanson. “SASB can be a part of that and deliver substance to the process. The initial socially responsible indices were established a of couple decades ago, which created the ability to run the numbers, to do empirical tests and to present the case that you can take a high-quality sustainable business investment approach and not only does it not hurt returns, it can be additive of returns. That debate is done in the sense that now the data exists over a couple of decades, identifying, codifying sustainability and high-quality business practices. It can be shown that there’s risk reduction, that there can be returns added through a high-quality approach.”
Hanson thinks we’re in the early innings of the next stage, where there’s a more uniform approach to metrics, accountability and the proof statement that a business or a portfolio is performing in a best-in-class way. “It’s a big opportunity for advisors to provide those insights to clients who say ‘I want sustainability, so show me how I make that happen.’”