Antonello is Head of Risk and Quantitative Analysis – EMEA Index Strategies at BlackRock and will be participating on the panel ‘ESG and SRI investing on the boom – What does it mean for performance and risk teams?’ at TSAM London.
We got in touch with him to ask a few questions regarding the topic and here are his thoughts:
With the growing focus on socially responsible investing (SRI), institutional investors/ large pension funds are starting to consider the importance of ESG in mainstream decision making. What is driving this change and how are investment managers reacting to it?
Sustainable investing is increasingly becoming a major force across global financial markets, driving flows and asset growth. According to the Global Sustainable Investing Alliance, global sustainable investment reached USD 30.7 trillion in 2018. Multiple factors support this growth: the urgent need to address climate change and the increasing salience of associated physical and transition risks, changing societal preferences, and the increasing availability and quality of ESG data, to name a few.
As we’ve seen through populist and student-led movements around the world, society’s expectations of companies, asset managers, and asset owners are changing. At BlackRock, we believe this will lead to a major reallocation of capital as those expectations are manifested into capital allocation decisions in the future.
The integration of ESG into mainstream investment decision making is becoming increasingly popular. But what are some of the factors/ challenges that investors face in doing so?
One challenge that investors face in integrating ESG into mainstream decision making is the quality and availability of ESG data. As Larry Fink writes in his letter to CEOs, important progress improving disclosure has already been made, but we need to achieve more widespread and standardized adoption. That is why BlackRock is engaging with companies and advocating for greater disclosure aligned with the Sustainability Accounting Standards Board and the Task Force on Climate-related Financial Disclosures.
Is ESG and SRI a major way to hedge risk and ensure robust performance in the long run?
Our investment conviction is that sustainability-integrated portfolios can provide better risk- adjusted returns to investors. And with the impact of sustainability on investment returns increasing, we believe that all investors need to consider sustainability in their portfolios.
Are ETFs a major way to hedge risk and ensure robust performance in the long run?
Investors all over the world use exchange traded funds because they are low cost, transparent and offer a rich diversity of exposures. We already have the industry’s largest suite of ESG ETFs and are looking to double our offerings of ESG ETFs over the next few years. Resilient and well-constructed portfolios are essential to achieving long-term investment goals.
Is it possible to ally responsible investing in passive management?
We believe that sustainability should be our new standard for investing. We believe in making sustainable investing more accessible to all investors and lowering the hurdles for those who want to act. ETFs have democratized access to sustainable investing for many investors. We are currently working with index providers to expand and improve the universe of sustainable indexes, specifically on providing sustainable versions of flagship indices.
We will also continue to work with them to promote greater standardization and transparency of sustainable benchmark methodology.
In addition, we see investment stewardship as an essential component of our fiduciary responsibility and particularly important for our index holdings on behalf of clients, in which we are essentially permanent shareholders. We have a responsibility to engage with companies to understand if they are adequately disclosing and managing sustainability-related risks, and to hold them to account through proxy voting if they are not.