ESG investing: Making an impact

Russell Investments portfolio manager James Harwood looks at how the battle to halt climate change is changing how your super is invested.

By James Harwood - 2 min 30 sec read

A little about James

James Harwood is a portfolio manager for Russell Investments, responsible for directly managed global equity funds. He manages funds across a range of investment strategies in global equities, decarbonisation and domestic ESG strategies.

Around the world asset managers—the professionals who invest the money you put into super—are paying increased attention to the environment in response to rising public awareness about our changing climate. 

The impact of climate change has become all too familiar—sea levels have risen, ocean acidification has increased and extreme weather events, whether that is bushfires, storms, floods or droughts, are more common and more severe. 

And it’s not just the climate that is having an impact on asset managers. Social issues, like how companies look after their staff or behave towards the communities they operate in, are also having an effect. Collectively these are known as Environmental, Social and Governance factors, or ESG for short. 

ESG factors ramping up worldwide 

At Russell Investments, we survey hundreds of asset managers each year to understand how they are integrating these ESG factors into their investment process. The aim is to make sure we meet our goal to employ a firmwide, holistic, ESG-integrated approach to our investment process. The latest 2021 survey received responses from 369 asset managers worldwide representing more than $100 trillion of assets under management. 

It found a much larger focus on climate risk than in previous surveys and a stronger commitment to the target of net zero greenhouse gas emissions by 2050—a target governments across the globe have signed up to and which is aligned with the ‘Paris Agreement’. 

The asset managers surveyed also reported they were much more actively involved with the companies they owned shares in and were engaging with them about the impact of not just climate change but the other social and governance issues as well. 

More and more of these asset managers are moving their investments towards companies making the transition to low carbon emission activities, and to those showing greater efforts to promote better social and governance policies This is because we believe companies whose behaviour helps mitigate future climate events or promote a more harmonious relationship with the broader community are likely to deliver more reliable long-term outcomes.   

Making an impact 

Russell Investments is focused on building investment portfolios that generate long-term sustainable value and expects that climate change will have a material impact on investment outcomes in the coming years. 

We have recently become signatories to the Net Zero Asset Management Initiative, which aims to get the whole asset management industry to commit to a goal of net zero emissions by 2050 or sooner, to help limit global warming to 1.5 degrees Celsius. 

To accelerate these efforts, Russell Investments has added new roles to its responsible investing team and established a global taskforce to develop a net-zero emissions transition plan. 

Every fund manager at Russell investments now receives an ESG risk report that gives a breakdown of the biggest ESG risks in each fund we invest in. The manager then uses this information at a quarterly oversight process, to review the most risky stocks in our portfolios. 

The changes needed to address climate change are quite daunting, but we believe understanding what is happening, and the way financial markets are evolving to meet the challenge, is worth it.  

In fact, individual investment in sustainable or ESG funds is growing to such a scale it is starting to influence all major players in the climate change debate, from policymakers and regulators to small business seeking to finance expansion and growth.   

At Russell investments, the evolution of ESG over the last couple of years has been significant, but ultimately success requires everyone to work together to ensure that meaningful and solid change will happen.  

Want to know more? Read the latest ESG survey from Russell Investments. 

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