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2019 ESG & Impact Investor Forum Event Recap

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Goldman Sachs convened a group of senior investment professionals from leading institutions to share their insights on investing in climate risks and opportunities, diversity and inclusion, governance and engagement, and ESG data. Here are the key takeaways from discussions with these practitioners.

SURVEY SAYS

We surveyed investment professionals representing six countries and over $2 trillion in AUM

TOP 3 TAKEAWAYS

1. ESG and impact investing is a process, not an act.

  • “Build a canoe, not an ocean liner” when taking the first step in ESG investing and then “take the next wise action.” Find the thoughtful entry points that allow you to get started and then reflect and iterate. If the decision seems too large and too complex, you won’t move.
  • Practitioners shared their own experiences of getting started in ESG. Some set aside a portion of their portfolio to “audition” impact strategies or managers, while others began by removing coal exposure from a single asset class, such as equities or fixed income.
  • The right systems, processes, and organizational culture also need to be in place to effectively dig into ESG issues. Leadership can help set the tone for the organization that ESG is a valued process and can work best when fully integrated into the investment teams, rather than operating as a separate, walled-off unit.

2. We believe this is an investment question and it takes humans to get to the right answers.

  • ESG and impact investing requires the same rigor, depth, and care applied to all investment ideas and processes.
  • Like all investment questions, there can be more than one right answer. ESG has evolved from a focus on simple binaries (e.g., whether or not a company has certain policies in place) to a more fulsome evaluation of the “what” and the “how” – what a business does and how they do it. This helps us gauge how sustainable a company’s business model and growth will be over time, not just at a particular point in time.
  • As in all fundamental research, engaging with companies directly and using human intuition can help extract the most useful and usable insights from ESG data. Taking company polices and disclosures at face value can lead to incorrect conclusions or overlooked risks. In our view, this is where human insight is irreplaceable.

3. Focus on material performance data, not scores.

  • For ESG data to be additive to the investment process and returns, we believe data should be (1) material and measurable, (2) transparent, not black boxed, (3) focused, not dilutive, and (4) provide insights into companies’ performance, not just their polices or disclosures. Getting away from aggregated data sets can allow us to take it apart and test the data empirically and also with our own intuitions.
  • Our survey found that more standardized and systematic reporting, such as the Sustainability Accounting Standards Board (“SASB”), is most needed when it comes to improving the quality of ESG data.
  • The SASB framework can provide a helpful jumping off point for identifying and classifying financially material information by industry. But just as the risks companies face are evolving, it’s important to stay flexible and iterate on the frameworks used to evaluate those risks.

 

Related Insights

August 2018 | Muni Market Views
Municipal Bonds: An Overlooked Impact Investment?

Investors are increasingly attracted to portfolios that can generate positive impact alongside market rates of return, but the range of eligible investments can frequently look too narrow, or confined to less-liquid areas of the market. What if so-called impact investment opportunities were hiding in plain sight, among more ‘vanilla’ parts of a traditional investment portfolio? Enter: municipal bonds. We discuss this opportunity with the GSAM Municipal team’s senior portfolio manager Ben Barber and Michael Kashani, global head of ESG portfolio management within fixed income.

Overview: ESG and Impact Investing

In an ultra-connected world where transparency is the norm, investors have begun to appreciate that compartmentalizing their values and investment decisions is no longer practical. 

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