Editor’s Note: This is the second in a series of articles. To read the first article, click here.
The women leaders interviewed for this series are clear about today's capital market opportunities and risks. They are embracing both as the investment industry transitions toward a low carbon economy with greater emphasis on the economic value of intangible corporate assets and social impact enterprises.
These women are trendsetters and innovators, using their industry experience and leadership platforms to articulate a powerful message regarding the rapid growth in the use of non-financial data to drive investment performance and risk management.
Increase Portfolio Transparency
Tanya Svidler became director of ESG Solutions at Morningstar in February 2017. Among her responsibilities are new business and product development across ESG, global sustainability and impact investing for active, passive and index portfolio strategies. Prior to joining Morningstar, Tanya was a vice president at MSCI, responsible for the product development and strategic oversight of MSCI’s ESG Index family. Prior to MSCI, she was a director of impact investing at Global Brigades, focused on the expansion of impact programs and investments in Central America and West Africa. Earlier in her career, Tanya spent 14 years in asset management, primarily at Franklin Templeton, first on the investment side, then building international institutional business in 26 countries across EMEA.
She is excited about the carbon impact assessment, which is going to launch at the start of Q2 in Morningstar Direct in addition to the sustainability ratings system (“The Globe Ratings”) that launched in 2016. “Both have been developed in conjunction with our ESG research partner, Sustainalytics, to support investors and advisors in their due diligence process for sustainable portfolio construction,” says Svidler.
“Leadership success for me is to understand what role I can play that creates the most leverage in collectively advancing sustainable finance.” Svidler continues, “I feel that my strength is in the ability to identify what would create the biggest impact on sustainable investment growth.” Her goal is broad industry adoption of a more meaningful long-term investment approach that includes ESG factor analysis.
How are these women leaders different from many of the men in financial services with similar experience and credentials? These men also believe that economically sustainable capital market investing is in everyone’s best interest. The difference, I believe, is the perception of investment risk and portfolio impact related to the integration of ESG factors. These women believe there is at least as much risk to sustainable long-term performance in not including ESG factors along with traditional risk and return metrics, a perspective that numerous industry studies in recent years support. Many men believe that ESG factors do not contribute to portfolio performance and investment risk and focus more on traditional risk and return metrics.
Embed The SDGs As Immutable
Holly Ruxin is the founder of Montcalm TCR LLC, a San Francisco-based wealth management and capital markets trading firm. She leads the firm as CEO and chief investment officer based on the values of integrity, collaboration, engagement and client sustainability. She began her investment career 20 years ago at Goldman Sachs in the fixed income derivatives arena and has led private client teams at Morgan Stanley, Montgomery Securities and Bank of America.
Her process for providing long-term benefits to investors across the 21st century sustainable economy is very clear. “First, vet the most scalable opportunities for performance and risk using the best tools of traditional finance, then integrate ESG and impact factor analysis.” Ruxin believes the next step is critical to the use of existing and the creation of new product strategies. “It involves embedding the UN Sustainable Development Goals (SDGs) as immutable to this process,” says Ruxin. “This global framework provides the opportunity for collaboration between the forces of economy and the social needs of civil society. It has also been adopted for this purpose by 150 nations worldwide.”
Both Svidler and Ruxin encourage financial advisors to carefully consider the risks to investors and their practices of not engaging their clients in conversation about sustainable and impact investing, regardless of the advisor’s comfort level in discussing ESG metrics and their application to portfolio diversification.
Risks To Investors
Some investment risks include not participating in the growth potential and low-cost scaling of new technologies and companies that are disruptive to vital sectors of the economy. These include renewable energy sources, low carbon battery, electric vehicle (EV) and driverless vehicle technologies, Blockchain and cryptocurrencies, artificial intelligence (AI) and more efficient management and use of scarce resources like clean water to name a few.
Stranded asset risk relates to the potential for surplus proven reserves of coal, oil and gas, and the valuation that these unburnable fossil fuels represent on the balance sheets of public and private firms in the energy sector.
Power purchase agreements (PPAs) issued to provide long-term supply from coal-fired power plants may also create balance sheet risk for energy suppliers and consumers during the transition to a low carbon economy.
Risks To Advisors
Many advisors offer holistic financial planning services that include long-term investment strategy guidance for clients while the demand for inclusion of sustainable and impact portfolio solutions continues to be investor driven. Relationship risk, as indicated in recent investor surveys, is that women and millennial investors are not offered the integration of ESG factor analysis for their investment portfolio strategies. Absent such integration this risk potentially reduces the value of a practice for the senior advisor preparing to transition it to the next generation, and could affect the senior advisor’s own retirement and succession planning.
Timely Support From Industry Leaders
Laurence Fink, founder and chief executive of BlackRock, recently sent a letter to business leaders regarding the need for their companies to contribute to society as well as make profits if they want his firm’s support. This is the type of leadership choice that women in sustainable finance want to see as actively and passively managed ESG and impact investment strategies increase in number and gather more investor assets.
Paul Ellis founded Paul Ellis Consulting to work with financial advisors who want to integrate sustainable and impact investment strategies for their clients.