How should investors evaluate tracking error in light of internal and external pressure for more ESG integration?
Speaker : Altaf Kassam
Two years ago, my son gave my family a shock – he was turning vegetarian. Soon after, he surprised us again by resolving to stop flying. He was always very environmentally aware and both decisions were taken to reduce his carbon footprint. Yet, he also loved steaks, burgers and exotic holidays. Since then, he has stuck to his principles and never wavered, however inconvenient.
We are witnessing a similar shift from our clients when it comes to ‘ESGising’ their investments. A growing number of studies show that ESG investments generally exhibit robust performance, especially through crises, and more importantly, they add value, which becomes more significant over longer time horizons.
These findings should be carefully considered by investors who feel they are walking a tightrope between integrating their ESG criteria and fulfilling their fiduciary duties – a false dichotomy, but a perception, nonetheless.
As a result, we now see ESG considerations starting to outweigh traditional investment metrics in clients’ portfolios. I think that with rising ESG adoption we are going to see further changes in two stages:
Unlike my son’s New Year’s resolutions, these changes won’t happen overnight, but I believe they will be similarly steadfast. As for me, even though I still (guiltily) enjoy the odd cheeky kebab, I also realise that in the long run the plant-based diet which my family increasingly follows is better for my health.
Who knows, I might turn vegetarian myself one day, but probably not overnight.
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Exp. Date: 3/31/2022