Putting ESG at the centre of investing
Environment, social and governance performance is about risk management and resiliency, says Manulife Investment Management.
Sustainable investing and smart investing can go hand in hand. Increasingly, that means measuring and engaging in progress around ESG: environment, social and governance factors.
“In my opinion, focusing on the sustainability of the business can improve the risk-return profile,” says Patrick Blais, Senior Managing Director and Senior Portfolio Manager, Manulife Investment Management.
ESG covers how companies fare around climate impact, natural resource use, waste management, employee health and safety, diversity and inclusion, respect for the community, board and executive composition and oversight, shareholder rights, and more.
Blais believes organizations that excel in these areas tend to show better financial performance and returns over time.
“Companies that take ESG seriously signal a culture to manage overall risks and opportunities effectively on an ongoing basis,” he says.
When you operate in a responsible way for the benefit of all stakeholders, Blais says the shareholders ultimately profit.
Consider the impact of reducing waste and energy consumption, fostering loyal employees and customers, adopting even more sound management and controls, enhancing your reputation, and increasing the social license to operate.
All of that makes ESG progress a competitive advantage. Margaret Childe, Head of ESG, Canada, Manulife Investment Management, says that such stewardship is a prime indicator of resilience.
Placing a priority on ESG issues speaks to companies that are forward-thinking more broadly.
That’s evident in the bottom line. And it makes such companies, and portfolios that strongly consider ESG, better able to weather various storms and create long-term value.
“That’s a value proposition that ESG provides,” says Childe.
“Companies that take ESG seriously signal a culture to manage overall risks and opportunities effectively,”
says Patrick Blais, Head of Fundamental Equity Team, Manulife Investment Management.
ESG is mainstream
Manulife Investment Management has received an A+ from the United Nations-supported Principles for Responsible Investment (PRI) for ESG strategy and governance, integration in listed equity and fixed income SSA which includes sovereigns, supranationals, and agency bonds.
The company developed its first ESG policy in 2015 and signed onto PRI the same year. PRI is a global organization of over 3,000 signatories, which collectively manage more than $103 trillion in assets.
The scale of these signatories underscores a critical trend among asset owners: to demand that investment managers build sustainable investing principles into their decisions.
Investors can live with risks, says Blais. Everything has a risk. What we don’t want to be exposed to, he says, are the types of risks with a low probability of performance and dire results.
“A good ESG framework allows you to have confidence that a company can better avoid those tail risks,” he says.
That framework speaks to management that’s always looking ahead says Blais, and looks at the broad range of what can possibly affect their business. “It puts their company on a more sustainable pathway,” he says.
Childe says that the Manulife Investment Management approach to considering ESG has three elements.
It starts with due diligence. When Childe started in 2017, her team included three ESG analysts. There are now 13. Manulife Investment Management undertakes a deep analysis of data and material ESG factors, including ones specific to the given industry and general ones. That’s part of a foundational assessment.
Her team also gauges ESG performance against benchmarks. At least quarterly, they sit down with investment groups to review ESG profiles.
Lastly, there’s stewardship. That includes engaging with invested companies around their ESG efforts. Are they vulnerable to ESG risks? How are they embracing ESG opportunities? Proxy voting to express views and help drive change is also part of active investing.
“It’s table stakes to have an ESG approach,”
says Margaret Childe, Head of ESG, Canada, Manulife Investment Management.
Doing good and doing well
ESG monitoring isn’t new, but companies are becoming much more systemic in how they do it, says Childe. Sustainable investing has evolved from a do-no-harm philosophy to grasping the business case: doing good and doing well are linked.
“It’s table stakes to have an ESG approach,” says Childe.
Manulife Investment Management focuses on ESG integration throughout all portfolio management teams. It also offers thematic ESG investment opportunities like the Manulife Climate Action Fund, which launched this May.
The idea for the Fund came in response to growing demand from the investment community. Engagement with the community revealed a high interest in ESG and in a product that addresses specific values and issues – climate being number one.
The Fund strategy focuses on companies that the portfolio management team considers as climate leaders (aligned with a net-zero investment strategy), as well as companies that have committed to or have verified science-based targets.
“They’re preparing themselves for the new reality,” says Blais. “This only makes them better investments.”
In making assessments and decisions, Manulife Investment Management is focused on the bottom-up fundamentals. What the company understands is that ESG factors aren’t distinct from those fundamentals. Strong metrics in these areas should give investors more confidence.
“In my opinion, you can’t be credible without having a true ESG framework embedded throughout your investment process,” says Blais. “ESG improves your investment approach.”
May 11, 2021