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WEALTH TALK SUMMARY - Incorporating ESG into the investment process

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Speaking at Hubbis’ Investment Solutions Forum 2017 in Singapore in June – Juan Manuel Aronna of RBC Wealth Management says while environmental issues make headlines when eco-disasters strike, investors are now looking through the gloom.

Although recent research shows that the majority of institutional investors now incorporate ESG (environmental and social governance factors) in their investment process, there are still hurdles in getting the eco message across to investors, and also having banks buy into it.

This is according to Juan Manuel Aronna, managing director and head of investment solutions and products for RBC Wealth Management in Asia. He says that although ESG has been around for a long time in different forms, it became an investment philosophy around the year 2000 – and it’s more an evolution.

However, more clarity is needed around the concept, he adds. This is because ESG refers to environmental and social governance factors of an investment attributed to enhance the analysis of the company, along with an understanding of overall risk and opportunity, which may also encompass constructive ownership and corporate engagement.

He believes a hurdle is sell it as a value proposition to investors. Similarly, he insists that client advisers, investment specialists and other industry professionals have difficulty conveying such a message to clients – given that this is another lens added to the investment process.

As a result, some private banks have made the mistake of trying to pass the cost of ESG on to clients, says Aronna.

However, there are ways to implement ESG through positive selection by choosing companies with high ESG scores, he explains, adding that another avenue is the inclusion of risk parameters to have a top-down approach.

He also believes that adding an ESG forward-looking aspect will have an impact on future performance by institutions. He cites his own bank’s performance this year, with its investment professionals beating the benchmark by 1.7%. 

Juan Manuel Aronna

Managing Director, Head of Investment Solutions & Products, Asia at RBC Wealth Management