Environmental, Social and Corporate Governance (ESG) are the three most studied areas of a company’s performance when determining if investing is sustainable or socially prudent. Sustainable investment is widely considered to be key to the preservation of the planet and our society, with investors dictating where money goes and setting the tempo for emissions and other environmental practices.
Money makes the world go round, or at least determines what happens in it. Where large corporations spend and how they spend has an untold effect on our everyday lives and futures. Many large investment firms have an ESG policy, with dedicated funds set up investing in companies which comply with such sustainable standards. This, however, can often be used as a smokescreen, with the Financial Times reporting ESG assets under management (AUM) at just $1tn, paling in comparison to the world’s total of $41tn in AUM.
ESG is not without drawbacks of its own. Cahal Murphy, Chief Investment Officer of UCD’s Student Management Fund (SMF), highlighted the trouble in pinpointing just how sustainable any given company is. Murphy lamented the “lack of industry standards for ESG reporting”, though he is confident that the problem is “actively being tackled” and “won’t be an obstacle for much longer”.
The SMF has a newly founded ‘Renewable Energy’ sector team. Furthermore, the fund has explicitly stated that every sector manager must now consider ESG risks when analysing any equity. “The ESG section of the pitchbook will form a key part of the investment decision for the fund,” Murphy said.
Governmental and regulatory structures will have a key role in sustainable investment going forward. While there is already growing momentum in trends such as green energy, electric vehicles, and low-carbon manufacturing, further changes may come from carbon taxes or other restrictions on production. Murphy wants the fund to position itself on the “right side of such structural shifts” in the economy.
Not put off by the fund’s small size, SMF CEO Anna Guthrie said their focus on a sustainable investment ideology holds. Guthrie believes that the SMF is “in a great position to highlight these issues” and “stimulate the debate on the risk of climate change, supply chain issues and governance problems”.
While student-run funds may not be able to move mountains here and now, UCD SMF “hope(s) that (their) analysts and managers bring this awareness into their future financial careers”.
Conor Bergin – Business Correspondent