Because ESG or sustainable investing is subjective, a standard objective methodology needs to be in place, argues UBP Asset Management.
“Different rating agencies may produce ratings with a completely different methodology or view,” Mathieu Nègre, head of emerging equities at the firm told Asian Private Banker.
“The risk is that the rating is rather subjective. You might claim that you invest in a good impact fund, but it’s difficult to be 100% sure.”
UBP recently launched its UBAM – Positive Impact Emerging Equity fund, in a bid to broaden its impact investment platform. The fund is available to accredited investors in Singapore as a restricted scheme.
Nègre, also the portfolio manager of the newly launched fund, said the firm has implemented an in-house methodology to determine the impact from a holistic point of view, as well as a governance structure to avoid the subjectivity of ESG investments.
He explained that four elements within the methodology scheme are vital: intentionality, materiality, additionality, and ability to grow.
“Intentionality is about how the company articulates its sustainability strategy and how we think about the impact it has,” he said. “Materiality indicates how much of the business is actually considered having an impact.”
“The third element is additionality, which basically answers the question that what would happen if that company didn’t exist. It indicates how critical the business is to reach one particular SDG goal. The last component is the ability of the company to stay, and to grow over time.”
He said once the team looks at all of the four dimensions, it scores each company out of five across those four areas. “If the total score doesn’t exceed 12, we’re not allowed to invest,” he pointed out.
On top of it, as part of the governance structure, the firm also has two layers of cross-checking, one from our internal investment committee, the other one from external advisory board.
Young asset class gaining
Nègre sees ESG as a “very young” asset class which has generated a great number of meetings and inbound inquiries.
“We’ re seeing an incredible amount of curiosity from all types of clients,” he said.
Ted Holland, Asia CEO for asset management at UBP, said in a previous press release that over the past couple years the firm has seen more institutional and individual investors in Asia becoming increasingly open to impact investing.
“The bulk of this interest has been more into private markets rather than public markets,” he said.
“So we are excited to offer a compelling and differentiating strategy investing in global emerging listed equity markets. This new strategy launch reinforces this commitment and is another step in strengthening the firm’s overall responsible investment programme”.
Against the backdrop of the overall market sell-off year-to-date, ESG or sustainable funds have shown resilience: driven by high asset stickiness and new ESG fund launches, the global sustainable fund universe raked in US$45.6 billion in 1Q20, according to Morningstar.