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How big investors are getting more bang for their RI buck

More and more of the global institutional investor set is turning to thematic strategies even as they resist the use of ESG benchmarks amidst questions about the methodologies that underpin them.

The use of ESG- benchmarks remains “limited”, while institutional investors are now integrating ESG considerations into their manager selection process and embracing thematic sustainable investing, according to an Amundi study of 20 institutional investors from around the world.

While many institutional investors have set portfolio carbon footprint targets, the majority of them don’t move to ESG specific benchmarks as a result, with one respondent to the Amundi study saying that the index provider methodologies that underpin specialised benchmarks can be “highly debatable”.

“The first step for using these specialized benchmarks generally applies to investors’ passive portfolio,” the Amundi paper says. “As an example, CalSTRS has shifted 20 per cent of its equity allocation to a low emissions index.

  • “(Austrian pension fund) VBV also reports using Paris-Aligned benchmarks for its passive equity mandates and intends to increasingly use them for its equity and corporate debt investments. Interestingly, VBV applies stricter criteria than those used by the index provider, by imposing a 10 per cent yearly decarbonization path compared with seven per cent for the index.”

    There has also  been a rise in sustainability-themed and impact strategies, with infrastructure and private equity highlighted as appropriate asset classes to invest in green and social themes, though Amundi has also charted a rise in the share of “green assets” across all major asset classes.

    However, it remains to be seen whether, as feared by (Danish pension fund) Pensam for instance, the valuation of these green strategies has not been over-inflated due to an imbalance between strong investor demand and a still narrow market,” the Amundi paper says.

    “For Pensam, which prefers to stay away from these thematic strategies, this is the case, while a Canadian pension plan considers there are currently lots of opportunities there, including climate impact and social impact solutions, to help it build a climate sleeve in its portfolio.

    And while an increasing number of investors are using thematic and impact strategies to “green” their portfolio, others believe that “transition-focussed strategies are key to reaching net zero objectives”.

    “NGS Super in particular ‘is not taking the easy route consisting in getting rid of high-carbon emitters to decarbonize its portfolio as it wants to maintain portfolio diversification’, whereas ‘merely divesting high emissions companies would bring immense volatility and tracking error to investment returns and not reduce the Fund’s carbon emissions to zero’,” the Amundi paper says.

    The study was undertaken by a host of Amundi Institute experts, including Marie Brière (pictured), head of investor intelligence, Timothée Jaulin, who oversees ESG development and advocacy; Caroline Le Meaux, who heads up ESG research, engagement and voting;  Murad Nuriyev, research analyst; and Eric Tazé-Bernard, senior adviser.

    Lachlan Maddock

    Lachlan is editor of Investor Strategy News and has extensive experience covering institutional investment.

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