NEPC’s Dulari Pancholi was featured in a recent Pensions & Investments article to share top ESG themes as well as developments in data, benchmarks and regulation that are powering continued inflows into ESG investing across both public and private assets. View the article on Pensions & Investments’ site here.
Environmental, social and governance investing has evolved far beyond a process based on exclusion to one that is inclusive, activist and focused on alpha. Institutional investors are addressing the dual purpose — to effect change and generate alpha — via a range of sustainable investment approaches, typically impact funds, asset-specific ESG strategies or multi-asset portfolios.
Across all approaches, the state of investing based on ESG factors is robust. Global ESG assets under management were $35.3 trillion in 2020, up 15% from $30.6 trillion in 2018, according to the Global Sustainable Investment Alliance. ESG’s portion of total global AUM rose to 35.9% from 33.4% in the same period.
GSIA projects global ESG AUM will rise 16%, to $41 trillion, this year; and 22%, to $50 trillion, by 2025. The message is clear: ESG investing is here to stay, and its future is bright
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While a multi-asset strategy can be one of several ways to implement an ESG investment approach, Dulari Pancholi, CFA, CAIA, principal and head of credit and multi-asset at NEPC, said that she sees multi-asset as the right approach for asset owners today.
“The way ESG investing has evolved almost requires you to take a multi-asset approach,” she said. “The investible universe has expanded so much beyond the listed stocks where ESG originated. Now there are asset classes like private debt and private markets, or debt more generally, [and they] are tougher to work with” in terms of the availability of ESG products and challenges in ESG data collection. “In the fixed-income space, for example, you now have green bonds, which are an evolution of green revolving-loan facilities. There are term loans that are tied to sustainability metrics and sustainability-linked bonds that are tied to the ESG performance of the portfolio or underlying company.
“So if you’re trying to build an ESG portfolio that can integrate some or all of the available asset classes, you need a toolbox that can hold a lot of different tools. That’s what multi-asset is all about,” Pancholi said.
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