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Cultural traits influencing ESG portfolio construction

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MEDIA RELEASE: Investment managers are increasingly approaching Environmental, Social and Governance (ESG) factors depending on the cultural nuances or jurisdiction of the investor, according to Morgan Stanley Investment Management lead portfolio specialist, Laura Bottega.

Ms Bottega said while ESG means different things to different people, some issues matter more to some investors depending on demographic factors, such as where they live or their age.

“While the concept of ESG investing has firmly entered the mainstream, it’s apparent it’s not a one-size-fits-all approach. Some investors in the Middle East, for example, actively seek out alcohol-free portfolios, and some Asian and Chinese clients may seek out high performance green technology investments first.

“With this in mind, asset managers are increasingly required to construct portfolios that closely mirror the cultural and behavioural characteristics of a particular country or region,” she said.

Research by Investment Trends shows 86 per cent of Australians expect their savings to be invested responsibly and a significant majority want to avoid fossil fuels in their investments, with last year’s bushfires and floods contributing to the increased awareness around climate related issues. Australia is also perceived more than other countries to care for others and the environment, as well as scoring highly on issues such as women’s rights and other social inequality measures.

“You can’t open a newspaper today – from anywhere in the world and certainly not in Australia – without seeing a headline on climate change or social issues. The pandemic has underscored the importance of sustainable investing – which now accounts for $40 trillion in assets globally,” said Ms Bottega.

Ms. Bottega said the way asset managers are engaging with companies on material ESG issues is also evolving, and having an impact on the way investors view particular stocks and sectors. She also believes that in some cases, companies that previously had poor records on matters of ESG are in a position to improve on key ESG issues following periods of active engagement.

“Progressive companies take responsibility into their supply chain and increasingly to their customer base, and staying on top of their reputation is important,” she said.

Bottega notes the rapid acceleration in the last year in tools that allow companies to monitor supply chains, and provide higher quality data. Global technology providers SAP and Accenture have also recently collaborated with the UN on a Sustainable Development Goals (SDG) Achievement Accelerator in monitoring the data companies are using in their supply chains.

“It’s all about transparency. A number of larger companies globally are now making commitments and are starting to recognise that if this is the direction the world is moving in, they need to be revisiting their processes and product line up.

“But as investors, we need to understand how they’re going to reduce their carbon footprint – it’s not enough for companies to just make a pledge. Our role as the asset owners is to investigate how they execute this in practice, for the benefit of our clients and the planet,” she said.

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