James Nauffray, CEO of OAKland Group
A wind of renewal has strengthened during the year 2020 in the investment funds world, in the course of a health crisis that has clearly enlightened certain levels of awareness. This beneficial wind is due to the accelerated consideration of ESG criteria, for Environmental-Social-Governance, in the sphere of investors.
This set of criteria, closely linked to that of Corporate Social Responsibility (CSR), is not new, but rather lies in the desire to integrate them almost systematically into the investment process.
The concept of Environmental concerns the ability of a company to master a policy of appropriate waste management, reduction of greenhouse gas emissions, prevention of environmental risks in its activity.
The concept of Social takes into account the prevention of accidents and psychosocial risks, staff training, respect for employee rights, the organization of the subcontracting chain and the quality of social dialogue.
The concept of Governance concerns the independence of the board of directors, the distribution between men and women within the management team, the management structure and the presence of an audit committee.
ESG engagement is no longer just a marginal orientation of certain investment funds. It is now driving a real transformation of the market. In 2020, out of more than 50 billion Euros collected on ETF’s (Exchange Traded Funds) in Europe, nearly 30 billion Euros were collected for funds involving ESG engagement, then 60% of flows! This trend is just as strong as in the sphere of private equity funds. This surge is explained by the simple fact of increasing investor demand combined with regulatory incentives. For example, the European Union regulation on the publication of information on sustainability in the financial services sector, will come into force and application on March 10, 2021! This means that the players concerned will have to integrate ESG at the heart of their investment, management, remuneration and reporting strategy. Dedicated committees will therefore be formed to set qualitative and quantitative criteria on these 3 dimensions, measured by KPIs. If you take a closer look, this is all going to be based on data collected within companies in the most objective possible way. This is a lot of data! Because to achieve maximum objectivity, it will be necessary to target the evidence of real activity rather than so-called “declarative” information. Hence the importance of examining the quality, reliability and security of the data concerned.
In addition, in view of the consideration of respect for the law, it seems rather inconceivable to imagine a company which would satisfy all the ESG criteria set for it without being in an acceptable compliance situation with regard to the General Data Protection Regulation (GDPR). Considering the number and categories of data to be collected, the type of collection and the type of exchange, being compliant with the GDPR is clearly a prerequisite for any credible and ESG approach.