Trysha Daskam is back for part 2 of The ESG Report. In this episode, she and Tom Fox are discussing what investors are looking for regarding ESG, the rise of ESG products, and making your ESG policy actionable and regulator-friendly.
ESG is a Must-Have
Tom and Trysha discuss what companies seeking investment need to have regarding ESG. “Maybe a year ago,” she remarks, “ESG was nice to have… today we are really in an environment where ESG is a must.” Placement managers and individual investors are demanding that firms state their position on ESG risk, as well as how they incorporate ESG into their investment strategy and how they manage those investments. In addition, Trysha points out, the industry is maturing so there are more tools companies can use to define their ESG programs. “I think we’re in a place where if you do not have a perspective on ESG you’re really behind at this point,” she comments. More companies are communicating their ESG commitment through their websites as well as their marketing materials, she tells Tom.
Key ESG Risk Areas
“Highlight some of the key ESG risk areas you see,” Tom asks Trysha. Companies struggle with how to put their ESG policy into action, she answers. Two other risk areas are that ESG policies may be too vague or may prescribe practices that the company has no competency to implement. She reminds listeners, “You must do what your policy says… It is better to have a policy that is very small in terms of its perspective but is accurate; that you are actually able to accomplish.” You can always build on your policy as you grow. Also, she emphasizes, appoint someone to check that you’re actually implementing your ESG policy. “The greatest risk with any policy or procedure at a firm is that you would not be able to substantiate that you did what you said you were going to do.” Most importantly, your ESG policy must effect some change. “If you’re a firm that has an ESG program that doesn’t require anybody to do anything, then what is the point of that policy? Why even have it?” Trysha argues.
ESG Trends
US investment managers are trending towards an ESG integration strategy, while for managers in the EU, launching an ESG product is the foremost strategy. There has also been an increase in ESG tools and benchmarking products, which “create a landscape for firms to think through the tools that they can use to tell their ESG story more elegantly,” Trysha says. However, you should vet whichever tool you choose with the same thoroughness as you would vet a third party vendor, she cautions. Tom asks where a company should start around ESG. Start by evaluating how comprehensive your ESG policy is, Trysha advises.
Resources
Silver Regulatory Associates
How EU Climate Regulations May Affect US Private Fund Managers
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