Outlook 2022
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We will continue to give our investors and dis- tributors a full range of choices in ESG investing, providing the data and disclosure needed to fulfil the requirements of SFDR and MiFID.
However, while not all ESG risk is financially material in the short term, the trend is for regulation and policy goals to change this: Only recently, the EU introduced regulation on supply chain due diligence, which will make the environment for companies ignoring biodiversity and human rights risk in- creasingly difficult. In the same way, the fact that higher car- bon prices and direct regulation of emissions are coming is be- yond debate. And finally, higher fossil fuel prices in themselves will, together with the underlying geopolitical considerations, support the decisions now taken by national governments to dramatically increase the pace of renewables coming online. All in all, we remain convinced that prudent management of financially material sustainability risk improves the risk/return relationship in the long term – and we know from experience that our disciplined analysis and security selection has the abil- ity to deliver strong performance, even in challenging times. We also know that in some cases, even things that one cannot put a price tag on are important – and that this is exactly what the SFDR concept of “double materiality” asks us to address. It is on this basis that we will continue to give our investors and distributors a full range of choices in ESG investing, provid- ing the data and disclosure needed to fulfil the requirements of SFDR and MiFID, and addressing the need to decarbonize investment portfolios in a way that creates real-world impact – all while striving to deliver superior investment performance. That is what being an ESG leader means to us at NAM.
At the same time, the demands on institutional investors re- garding ESG continue to increase in both number and com- plexity. In the near term, this is especially topical in the area of portfolio decarbonisation and net-zero commitments, but so- cial issues and biodiversity are important themes on the hori- zon, which will require attention. At the time of writing, the invasion of Ukraine by Russian forc- es, and the knock-on effects of sanctions on energy markets have raising questions about the nature of ESG and the ability of ESG strategies to outperform in different market scenarios. At NAM, we believe this is the time to reiterate that ESG, broad- ly defined, is not in itself a guarantee of higher – nor of lower – returns over a given period. In situations characterized by tight- ness in the market for fossil fuels, strategies that do not own oil and gas assets will be challenged to keep pace. When defence budgets surge, strategies that avoid defence stocks must find other avenues for investment. On the other hand, investors that for ESG reasons had low or no exposure to Russia have reaped financial as well as moral benefits.
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