In the following video update recorded at a recent Janus Henderson Fixed Income Forum, Paul LaCoursiere, who joined as Head of ESG Investments in January 2021, examines three key reasons why investors should care about environmental, social and governance (ESG) factors and explores an important challenge faced by the investment industry.
Key takeaways
- A positive relationship exists between ESG-related performance and investment performance that is statistically significant, and is gradually increasing in magnitude over time.
- ESG considerations are changing the markets we invest in and are now being reflected in asset valuations.
- Asset owners and asset managers are increasingly subject to disclosure and restriction regulation for the mandates they are responsible for or operate.
- Product design is arguably a key challenge faced by the investment industry, with a natural ‘tension’ between regulatory developments and financial market requirements.
Glossary:
Alpha – the difference, for example, between a portfolio's return and its benchmark’s return after adjusting for the level of risk taken. A positive alpha suggests that a portfolio has delivered a superior return given the risk taken.
Bond covenant – a legally binding term of agreement between a bond issuer and a bondholder determining certain activities that will or will not be undertaken.
Risk-free rate – the rate of return of an investment with, theoretically, zero risk.
Sell-side – a segment of the financial industry involved in the creation, promotion and sale of bonds, foreign exchange and stocks.
Systematic risk – the ongoing broad level of market risk that can be caused by a combination of factors such as the health of the economy, the level of interest rates and geopolitical issues.
