Asset Class Heads Reveal Challenges & Opportunities
Three of AIMCo’s asset class heads shared their insights on incorporating environmental, social and governance (ESG) considerations into the investment process.
The candid conversation, moderated by Lindsey Walton, occurred during AIMCo’s Spring Investment Symposium on May 13. Walton is Head of Canada at the United Nations-supported Principles for Responsible Investment (PRI).
Walton noted that the pandemic has brought ESG to the forefront and highlighted many systemic issues that were previously being addressed in behind-the-scenes work related to responsible investment.
The session provided perspective on AIMCo’s 10+ year responsible investment journey as well as a number of topical issues facing institutional investors.
Safeguarding Against Greenwashing
With the “E” in ESG getting plenty of attention, AIMCo’s Executive Vice President of Fixed Income, Sandra Lau, is on the lookout for greenwashing. In the fixed income space, AIMCo has invested in green bonds, on occasion. Now there are even more investment opportunities with an ESG tilt — products like social bonds, sustainability bonds and transition bonds.
Lau’s approach is pragmatic.
“Do your homework and ultimately look for improved transparency, better guiding principles and reporting practice,” she said.
“The transparency ask is not a wish or a hope, it’s a requirement. The team insists and expects the issuer will deliver.”
Lau maintains that buying a green bond or a social bond doesn’t make you a green investor. The bottom line is that you must understand what you buy.
Building Back Better
The phrase “build back better” is often referenced by governments and investors when discussing what a post-pandemic world might look like. Much of the conversation centres around how to couple the economic rebuild with the transition to a low-carbon economy.
AIMCo’s Senior Vice President of Infrastructure & Renewable Resources, Ben Hawkins, noted that people are starting to recognize the tremendous amount of capital that will be needed to meet the climate-related targets being set. For infrastructure investors, that will mean opportunities in renewables, but also in areas like power transmission and energy storage. Hawkins is also watching to see how some of the struggles with the transition will be resolved.
“People that are thinking about buying an electric vehicle — they’re often very conscious of the charging station infrastructure, both locally and across the country. And of course, the parties that are looking to build the charging stations, want to see the vehicle ownership. So, there’s a bit of that chicken and egg issue,” he said.
Infrastructure-related economic stimulus programs being rolled out by governments may serve as catalysts to overcome those types of challenges and provide knock-on opportunities for investors.
Making Diversity Gains
Diversity is another ESG issue that AIMCo and other institutional investors attempt to address with investment partners or at companies in which they invest.
Peter Teti, AIMCo’s Senior Vice President of Private Equity admits his industry is “woefully behind” other industries in terms of diversity. He has seen improvements in recent years though, particularly at larger private equity funds who are getting the message that diversity is important to their stakeholders.
“I do think the industry as a whole, needs to keep moving forward,” he said.
“Not only for the manner in which the fund hires and retains talent, but also for what they’re looking for in the investee companies as well, because they will make ultimately better investment decisions with a more diverse workforce.”