Expert view | Credit investors often ask whether excluding particular stocks, sectors or activities will have an impact on performance. Our analysis suggests broad ethical screens are likely to have a minimal effect on long-term returns — but more focused screens could have a larger impact.
Annual responsible investment report
Looking back on 2016
MARKET AND INDUSTRY DEVELOPMENTS IN 2016 ENCOURAGED INVESTORS TO MAINTAIN A SHARP FOCUS ON ESG ISSUES. INSIGHT IS COMMITTED TO MAINTAINING A RESPONSIBLE INVESTMENT APPROACH THROUGH CHANGING MARKET CONDITIONS.
At the beginning of 2016, the French Energy Transition for Green Growth Law came into effect, which strengthened mandatory carbon disclosure requirements for listed companies and introduced carbon reporting for institutional investors. This has an impact on many of Insight’s European clients, to whom we are reporting ESG and carbon emissions information.
Midway through the year, the new UK Prime Minister Theresa May expressed a wish to reform corporate governance after the collapse of British retailer BHS and Sports Direct’s poor labour management practices drew significant media and political focus. Governance at private, as well as public, corporations is now subject to significant regulatory focus in the UK, on issues ranging from gender, to pay, board representation and employee rights. Insight has developed its corporate engagement programme to hold companies to account on their ESG performance.
Later in the year, the Financial Stability Board’s Task Force on Climate-related Financial Disclosures released its much-anticipated report into the disclosure by financial market participants on how they are managing climate-related risks. The European Union will review the findings in 2017 for potential implementation in law. Insight now manages dedicated climate-focused funds and we anticipate a gradual growth in fixed income solutions for clients looking to meet both climate objectives and access to improved fund climate impact transparency.
The risks of nationalist and populist movements undermining globalisation and economic integration, and the possibility that major geopolitical relationships could shift significantly, have introduced material unknowns in the near term. Against this backdrop, a responsible approach to investment that takes a holistic view of risk – including ESG risks – has become all the more important.
At Insight, we focused on a range of initiatives in 2016, including the following highlights:
- Our analysts engaged on ESG issues with more than 150 companies across a range of issues and geographies.
- We continued to work on integrating our responsible investment approach across our business. We were awarded an ‘A’ rating by the PRI for integration of our approach in fixed income specifically. This reflects our embedded ESG process in credit.
- We updated our Responsible Investment Policy to shift its focus away from the basics of responsible investment, towards our broader aspirations as a business.
- We published research on the impact of portfolio exclusions on corporate bond investments. This research revealed that broad exclusions based on ethical criteria would have had a minimal impact on an index-tracking corporate bond portfolio over the last 10 years – but a more focused screen may have had a larger impact. Such research with regard to equity portfolios is common, but rare in fixed income.
- We enhanced our communication on responsible investment. Insight launched a dedicated microsite for responsible investment, housing reports, policy documents, education material and other useful content.
Insight North America LLC (INA) is a registered investment adviser under the Investment Advisers Act of 1940 and regulated by the US Securities and Exchange Commission. INA is part of “Insight” or “Insight Investment”, the corporate brand for certain asset management companies operated by Insight Investment Management Limited including, among others, Insight Investment Management (Global) Limited, Insight Investment International Limited, Cutwater Asset Management Corp., and Cutwater Investor Services corp. Insight’s assets under management are represented by the value of cash securities and other economic exposures, and are calculated on a gross notional basis. Advisory services referenced herein are available in the US only through INA.
The views herein represent the opinions of Insight and are subject to change based on subsequent developments. They are not intended as investment advice or to predict or depict the performance of any investment. The material contained herein is not intended to provide, and should not be relied on for, investment, accounting or legal tax advice. Further, this material does not constitute a recommendation to buy, sell or hold any security. No offer or solicitation for the sale of any security or financial instrument is made hereby.
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