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The first steps towards responsible investments were taken by former UN Secretary General Kofi Annan in 2004 and were set out in the UN Principles for Responsible Investment, published in 2006. The initiative, the idea, was revolutionary at the time, and its point was made stronger with a backdrop of an already significant body of research warning of the dangers of green-house gasses (GHG) and global warming. In spite of the publicity, though, Socially Responsible Investment (SRI) only took off gradually, and remained a specialist investment niche for almost two decades.

The narrative changed radically in 2020 with BlackRock CEO Larry Fink declaring in his annual letter to CEO's that "Climate Risk Is Investment Risk" and that his company would begin the process of assessing every portfolio for Environmental, Social and Governance (ESG) exposure. With BlackRock assets under management (AUM) topping $9trn, this statement rapidly reverberated around the world.

Equity Investments

Companies everywhere are exposed to ESG risk, some to a very limited, others to a much greater extent, while the majority find themselves somewhere in-between. For exchange-listed corporates, the subject of investor interest globally, this means that the traditional shareholder-value approach to define corporate success will no longer suffice. The greater and more obvious their exposure to ESG risk, the faster the markets will require a broad and deep assessment of each corporate for potential performance impact, both expected or unexpected. 

Credit Investments

Banks and institutional investors in credit products (bank loans, corporate bonds) have long observed operational risk at the corporates they invest in as an integral element of their credit evaluation process. This has traditionally focused on the risk that a corporate may not achieve its operational business objectives, while often ignoring the potential for ESG exposure. This is now changing. The degree to which a corporate is exposed to ESG risk is, among other things, assessed in terms of increased cost of compliance, and associated reduction in profitability, has a direct impact on credit spreads. Widening credit spreads, in turn, will have an impact on the optimal capital structure of the commercial enterprise, and will impact not only on the cost, but also the availability, of credit.

Data and Metrics

The Corona-virus pandemic has sharpened our interest in reliable data and data sources. It is therefore not entirely surprising that ESG data is becoming more widely available, or that analysts are increasingly including this data in their forward-looking value and performance models. Insofar as the data is quantitative, we can incorporate it with relative ease. It remains a challenge, however, that so much ESG data comes in qualitative form. What is the investment performance difference, for instance, between two companies, where one has implemented strong, diversity employment policies, while the other has been rationalising their supply-chain to exclude exposure to the use of child labour? Both initiatives are valuable in an ESG context, but how do you quantify them meaningfully and which is worth more?

ESG Investing for Fund Accountants Part 1 and Part 2

Uncertain which course to choose?  Well the differences/similarities between the two programmes are really clear: If you have recently started working in the asset management or banking sector, you should attend both Parts 1 and 2. On the other hand, if you are already working in these sectors and have a good insight into the decision-making processes of either, then we recommend that you take ESG Investing for Fund Accountants Part 2 only.

Finally, if all you require is to become familiar with the ESG initiatives relevant to investors, as well as learn about data availability, methods used and shortcomings of traditional valuation tools, then take ESG Investing for Fund Accountants Part 1.

I am looking forward to seeing you at any of these programmes.