The sixth largest asset manager in the world has said ESG investments have become intrinsic to its strategy.
Douglas Hodge, chief executive of the $1.59 trillion global investment management firm PIMCO, argued it was in their own interest to analyse ESG risks in todays changed world, in his opening address to delegates at the PRI in Person conference.
Hodge said that in the past investors looked at ESG “as unconnected to fiduciary duty” or “a type of investing reserved for the do-gooders” or associated with compromise.
However, the medium-term economic forecast put ESG principles at the forefront of investment decisions.
“ESG risks are real. They can cause real losses for companies and capital. ESG makes good business sense,” he said.
With meagre investor returns in bonds and equities and a world faced with more disruption and rising demand for natural resources he urged investors to embed long-term ESG analysis in their decision making as it was strategy which “made sense”.
Hodge described the current investment landscape as “low and flat,” in a nod to low interest rate and flat yield curves. The new post-crisis world was also characterised by heightened volatility, “a tsunami of regulation,” and little chance of a return to pre-crisis growth.
He said developed countries are now confronted by the so-called “3Ds” of debt, deficit and demographic challenges.
“The stock of debt limits extension of credit and ageing populations make creating organic growth very difficult.”
However he added banks’ reduced appetite to lend has triggered new sources of funding.
“Historically banks provided most debt finance. Now there is an increasing array of non-bank actors providing funding to the corporate sector.”
Although much of the world’s wealth creation has come from emerging markets the growth curves of some key economies, such as Brazil, China and Russia, have also been flat.
“Emerging economies are not always stable and remain prone to internal and external disruption factors,” he warned.
He also predicted the rising influence of the next generation would drive a move to ESG because millennials have different priorities that pay greater attention to sustainability than their parent’s generation.
“This new generation will want to invest according to their values and beliefs,” he anticipated.
The ninth annual PRI in Person held in London from September 8-10, brought together more than 1,000 decision makers from more than 25 countries to discuss the evolution and implantation of responsible investment. The program aimed to give delegates the tools to embed the Principles for Responsible Investment into business practices. Investment Magazine’s sister publication www.top1000funds.com is a media partner of PRI and was there to capture news from the sessions.
For more stories from PRI in Person click here.