ESG Moves From Niche To Norm
Patrick Kondarjian, EMEA head of sales, equity derivatives at HSBC said the demand for environmental, social and government investments has moved from niche to becoming normal.
Kondarjian spoke today on a webinar, ESG innovation in UK Equity – Introducing the FTSE UK 100 ESG Select Index, hosted by FTSE Russell, the index business owned by the London Stock Exchange Group.
He added that investors used to look at ESG as a risk management tool but now also look to ESG for performance.
At the beginning of this month HSBC chose the new FTSE UK 100 ESG Select Index as the underlying benchmark for a series of new ESG-related structured products.
With the FTSE UK 100 ESG Select Index, @FTSERussell is responding to a growing demand among investors to integrate sustainability and environmental, social and governance considerations into their passive investments. #ESG https://t.co/js3yE7qSOj
— FTSE Russell (@FTSERussell) February 1, 2019
Aled Jones, head of sustainable investing, Europe at FTSE Russell, said in a statement: “HSBC’s decision to licence this index as part of their portfolio of ESG-focused equity products is testament to the need for broad benchmarks that enable the development of ESG structured products and portfolios for individual clients.”
The FTSE UK 100 ESG Select Index will form part of HSBC’s portfolio of ESG-focused equity products.
Fong Yee Chan, senior product manager, sustainable investment at FTSE Russell, said on the webcast that the new index is constructed from the 100 companies with the highest ESG scores in their model from the FTSE All‐Share Index, which captures 98% of the UK’s market capitalisation.
Chan said: “There are 44 companies in the FTSE UK 100 ESG Select Index who are different from the FTSE 100 so it is not a replica.”
Kondarjian continued that the new index helps investors make the transition to an ESG benchmark.
“The new index has the advantage of familiarity as it tracks closely to the FTSE 100, so the price is similar for structured products, and it is liquid and transparent,” added Kondarjian. “The risk is minimised and the ESG score is maximised.”
The demand for ESG in exchange-traded funds was shown last year as total assets invested in ESG ETFs and ETPs listed globally rose by nearly one third, 29.51%, to $22.5bn (€20bn) according to ETFGI, an independent research and consultancy firm. Last year ESG classified products attracted $7.61bn in net new assets.
ETFGI said in a statement that the number and diversity of products has increased steadily since the launch of the iShares MSCI USA ESG Select ETF, the first ESG ETF/ETP, in 2002. At the end of last year there were 208 ESG ETFs/ETPs listed globally with 70 funds launched by 27 providers during 2018, including four in December.
“Confusion persists around what constitutes an ESG fund,” noted ETFGI. “According to PRI, a UN-supported initiative which seeks to understand the investment implications of ESG issues, 56% of adopters believe there is a lack of clarity in ESG definitions.”
ETFGI said its classification system attempts to provide greater precision, with ETFs/ETPs listed globally organised into categories, including core ESG products and theme-based groups, such as clean/alternative energies and gender diversity.
With Ankit Mittal, Business Change Manager, Global Trading, Schroders
Natural Asset Companies are sustainable enterprises that hold the rights to ecosystem services.
IIGCC and lead investors will launch a pilot with companies including BP, Eni, Repsol, Shell and Total.
587 investors with $46 trillion in AUM are urging governments to implement five priority actions
Social data is more difficult to find as this component is growing in importance to end investors.