Video ID:
8636
Job Number:
6909
Meta
Description:
Why ESG matters to pension schemes with Raj Hunjan, Associate Director, CAMRADATA Analytical Services
Bookmarks:
0|Why ESG matters
30|Why does ESG matter to pension schemes?
64|What do you look at?
87|Long term
127|Help to make judgements
164|What has changed?
221|What are clients doing?
262|Analysing portfolios
405|A must have?
Duration:
00:07:23
Recorded Date:
12 November 2012
Video Image:
Transcript:
Presenter: With CAMRADATA, we’re going to explore the principles of ESG (environmental, social and governance) monitoring and analysis for pension schemes. We look at how this development is viewed now, and how perspectives may change on ESG in the future. We’re joined by Raj Hunjan, who is Associate Director of CAMRADATA Analytical Services, to talk about ESG. Raj, why does ESG actually matter to pension schemes?
Raj Hunjan: Well pension schemes are long term investors. They have a duration on their pension side of over twenty years, and therefore we believe it’s vital that they match their investment outlook with this long term timeframe. Environmental, social and governance investing and analysis builds in long term issues into their investment decisions.
Presenter: Just remind us of the sorts of things that you actually look at?
Raj Hunjan: We look at 28 themes. So these include environmental issues such as climate change, water scarcity around the world, social aspects like labour issues, human rights, and also the governance side, business rights and corruption, to name quite a few.
Presenter: Just define for me what long term actually is.
Raj Hunjan: Long term is at least 20 years for me, and for the analysis that we’re looking at, so for instance what is your climate change risk, this is going to be a long term opinion on the world. For instance, looking at whether your companies are emitting too much carbon may not impact you in the next year or two, but ten years, twenty years down the line when carbon taxes become a huge part of their costs, it could have a very material impact on them and then therefore as you as the investor of these companies.
Presenter: So you actually help people make a judgement?
Raj Hunjan: We want to just provide the analysis, so basically give trustees the tools to see exactly what their issues are, and then they can take it up with their asset managers on, in essence we see that companies who are maybe overexposed to labour issues, as something that trustees should know, so that they can then raise it with their asset managers and say how have you taken this into account when you’ve been buying the companies, will this have an issue if labour laws change in five years’ time, and therefore cause an issue for their supply chain, for instance.
Presenter: So what’s changed, why has this come to the fore now?
Raj Hunjan: What we’ve seen is that companies are now much more global, so they're now exposed to the whole world. One of the things that some of the analysis I've done recently is looking at the FTSE 100 and how the exposure to regimes outside of Europe has increased massively. So in the ’80s, the FTSE 100 would have been around 80% exposed to UK, in terms of sales revenue, so where they're generating money. Now it’s much more 80% of their sales is exposed to everywhere except the UK. So that means that global issues, in terms of ESG, so climate change, labour issues, business rights and corruption, are going to have a much more material impact potentially in the future on even a UK company.
Presenter: What are clients doing about this now?
Raj Hunjan: Well we have two distinct groups of clients. The first group are very new to ESG, and they see ESG as something that may be an issue in the future, so they want to implement ESG monitoring in a gradual way. And the first way they might do this is by start looking at whether the companies they're invested in are exposed to countries that are on embargo lists. So the US and UK have embargo lists of countries that they would prefer not to do business with, and we can provide analysis to trustees that says either they have no exposure, or if they have exposure, how big is it.
Presenter: So you actually take the client’s portfolios and you analyse it for all these issues?
Raj Hunjan: We will take their holdings data of a portfolio and look at each individual company, at what they disclose as their sales revenue, their assets around the world, and their operating income, and we’ll run it against the list of embargo countries.
Presenter: And the second group of clients?
Raj Hunjan: So the second group are much more aware of ESG and also socially responsible investing. They may have had a few investments in SRI in the past, and they're now looking to incorporate ESG principles across their whole group of investments. So it might be all of their different equity funds, it might be their bonds as well, and also maybe their property investments, just basically overlying ESG criteria. So, as I've mentioned before, the climate change, business rights, whether they're exposed to corruption issues around the world. In addition to this, they might also start looking at the carbon outputs of companies within portfolios, to see whether if the companies that have been picked by the portfolio manager are emitting too much carbon, why have they decided, is it because the financial gain at the moment is, offsets the potential issue in the future. So essentially what our tools are trying to do is basically give trustees the tools to engage with their asset managers.
Presenter: So look ten years into the future for me and tell me what you believe the industry will look like.
Raj Hunjan: We see that the industry will be very much, it will very much have ESG in the centre of the governance framework, so we’ll be engaging with trustees on a regular basis, monitoring all of their investments for ESG criteria, which they may well design themselves. So they might decide that environmental issues are the biggest issue for them, and also they might decide that environmental isn’t the priority; it’s more about the social aspects. So we’ll be able to design a framework that they can use to engage with their managers and also the members of the scheme.
Presenter: So you believe that ESG analytics is going to be a must have rather than a nice to have?
Raj Hunjan: Yeah, we like to think of it’ll be in the same way that recycling has been adopted by most households in the UK. Ten years ago you may not have seen that happening but now it’s the norm, and that’s what we see about ESG as well, it will be the norm for institutional investors like pension schemes.
Presenter: Raj Hunjan, thank you very much indeed.
Raj Hunjan: Okay.
Important Information
Views expressed in this webcast are the personal opinions of the speaker(s) and should not be regarded as the official views of the Pensions Management Institute.
The PMI and Asset.tv accept no liability for decisions or actions taken by any individual arising from comments made or information provided by speakers on PMI TV.
Advanced
Slide Mode:
Off
Structured:
Nonstructured
Company info:
Contact: (PMI) The Pensions Management Institute