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The rise of ESG amid the pandemic

The COVID-19 crisis has clearly been the dominant topic on all investors’ lips this year. Consequently, Martin Currie is frequently being asked by clients if the impact of the pandemic has changed its approach to stewardship and ESG.

The reality is that we have not actually needed to change or expand our engagement in response to the pandemic. This is because our sustainability and ESG-related work is already fully integrated into every stage of our investment process. While we cannot travel to meet with investee companies and stakeholders in person, we have not stopped our intense focus on generating positive ESG outcomes from our engagement activities.

Interestingly, one thing that we are finding is that with all the social distancing and reduced travel occurring worldwide, there has been more availability and willingness from management and the boards of our investee companies to engage with us on broader ESG issues than ever before. This is one aspect that has been really encouraging during the COVID-19 period and we hope it continues.

A key thing that has changed, however, is the level of intensity we are seeing from clients around their focus on ESG. The pandemic has been a catalyst for greater scrutiny from clients on the way that asset managers invest on their behalf, to ensure this meets their expectations. They are asking for more hard evidence to support the broad ESG statements managers make regarding their investment process. Investors are being more proactive than ever before and we see that continuing post the pandemic.

And, although the COVID-19 pandemic has shifted the focus for investors somewhat, we have observed that climate change has continued to be the dominant theme for them within the ESG space. More than ever, they want to understand how we are approaching climate change in our portfolios, how we identify the risks and the potential opportunities. We are receiving an increasing number of requests for portfolio carbon footprints, scenario analysis on climate-related risks, and ESG questionnaires that include climate change questions, as well as client requests for modified portfolios which exclude high fossil fuel producing companies.

Going forward, we expect a bigger focus on decarbonisation and opportunities to be part of the transition to a lower-carbon economy. Elsewhere, cyber security and data privacy are also becoming key topics as the world becomes more digitalised, especially as the working-from-home trend continues. SDGs also continue to be a key topic.

COVID-19 has also brought an increasing focus from clients on the ‘social’ part of the ESG spectrum. We see this particularly around the theme of how companies approach and look after their key asset – their workforce – and how they focus on human rights issues, such as modern slavery, within their supply chains. This is particularly pertinent with the new modern slavery legislation coming into force in Australia this year.

As investors, we welcome this increased ESG focus from clients because stewardship for us is about partnership – how we work with our clients, how we partner with them to deliver the outcomes that they’re looking for and how we create long-term, sustainable value for them. This not only helps us to hone our focus but continually evolve and improve our ESG approach and the toolkit available for our investment teams.

 

The Stewardship Matters Report summarises outcomes of critically important Stewardship and ESG activities that the Martin Currie investment team undertake on behalf of their clients and presents an opportunity to share how the firm uses their global investment reach to lead on ESG issues and continually evolve their investment approach to make better informed decisions for a more sustainable future.

Read the Full Report

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About the author

David Sheasby, Head of Stewardship and ESG, Martin Currie

David joined Martin Currie in 2004 as a portfolio manager in our global team. Since 2015 has been fully dedicated to his role as Head of Stewardship and ESG, overseeing the integration of ESG and active ownership into our process, working with our investment teams to ensure continued best practice and has ownership of our policies, strategy and execution in this key area.

David also plays an active role in broader policy through the PRI as a member of the Stewardship Committee and as member of the Sustainable and Responsible Investment and the Stewardship Committees at the Investment Association.

Prior to Martin Currie, David was a senior portfolio manager for Aegon Asset Management (formerly Scottish Equitable) for 16 years covering global equities, developing and directing Aegon’s global strategy. During his time with Aegon, David headed its global equity, emerging markets and European teams. David has a Securities Institute Diploma and is a Fellow of the Securities Institute.


Definitions

Environmental, Social, and Governance (ESG) refers to the three central factors in measuring the sustainability and societal impact of an investment in a company or business.
The UNSustainable Development Goals (SDGs) are the blueprint to achieve a better and more sustainable future for all. They address the global challenges we face, including those related to poverty, inequality, climate, environmental degradation, prosperity, and peace and justice.

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