Krigen i Ukraine samt den voksende usikkerhed om energi-leverancer har skabt diskussion i ESG-sektoren om investeringer i forsvarsindustrien og atomkraftselskaber. En undersøgelse blandt investorer i marts viser, at halvdelen af investorerne mener, at disse typer investeringer bør betragtes som ESG-investeringer netop set i lyset af den aktuelle situation. Men det vil med sikkerhed også skabe modstand hos nogle ESG-investorer, som betragter militær og atomkraft som uforeneligt med ESG. En analyse fra Deutsche Bank viser, at der i ESG-sektoren er en tendens til at acceptere det, som hidtil har været betragtet som ikke-egnet set fra et miljøvenligt og samfundsansvarligt princip. Men analysen siger også, at det vil få selskaber med ESG-investeringer til at blive meget omhyggelige med at vurdere de konkrete investeringer i en ESG-sammenhæng.
Will defence and
nuclear pivot to
ESG?
In Europe, exclusions for nuclear and defence were at their highest heading into the Ukraine crisis, which led to a debate regarding the social merit of certain defence capabilities and nuclear energy exposure. In our view, the debate will contribute to more inclusive approaches from asset managers regarding ESG investing strategies. This aligns with themes we heard
at our Global ESG conference in early March.
To better understand this potential shift toward a more inclusive approach, we surveyed investors during the two-week period concluding 19 Mar, 2022. Interestingly, more than half of respondents felt defence and nuclear exposure should be allowed in ESG mandated funds. To be clear, many felt the exposure should be allowed in “some circumstances”, thus not a complete elimination of the exclusion. In fact, a small number of respondents had begun to allow certain exposures as a result of the current crisis.
Will this spur more meaningful revisions to exclusionary policies for sustainable funds? Funds currently employing exclusionary strategies will have a more difficult time shifting approaches due to the red tape from internal and external sustainability mandates and labels. The more likely change in strategy may come from funds currently employing an ESG integration approach as previous valuation overhangs and risk assessments may be “neutralised” (per a survey respondent).
Exclusions for nuclear and defence had been increasing
Retail fund data suggests exclusionary investing strategies continued to increase in Europe for military, weapons, small arms and nuclear energy through the end of last year. We find this data to be a good gauge of broader trends as institutional strategies will often mirror those of retail funds.
In some cases, institutional strategies may be even more restrictive, if requested by capital providers. Moreover, proprietary ESG integration frameworks may ultimately screen out certain exposures, so a formal exclusion may not be apparent. We have also heard anecdotal reports of fund managers choosing to avoid certain defence/nuclear exposed stocks as they were tired of defending these positions to asset allocators or providers.
In recent months, underperformance due to lack of exposure to this sector, while potentially a short-term issue, also
presents a challenge to ESG funds. While ESG funds are marketable, underperformance is not.
Summary thoughts
We believe funds employing exclusionary ESG strategies will have a hard time shifting. It may be that only those funds that can get through the red tape of internal and external sustainability mandates and labels will officially open up more investment capital to companies with defence or nuclear exposure. The bigger shift may come from funds that employ
an ESG integration approach. As one investor suggested, “The greater impact will come from funds that had to consider ESG factors within their process but do not have specific ESG mandates. Factors previously considered overhangs on valuation
are now more likely to be neutralised at worst and therefore remove a valuation headwind for many
stocks.”
We see this as an important point that could lead to more flexibility for the estimated ~$4T in AUM in Europe employing ESG integration strategies vs. the ~$9T running exclusionary/negative screening strategies. In the US, it is estimated that ~$3T in AUM utilize negative screening/ exclusionary strategies, while ~$16T ESG employ integration strategies.
(AUM estimates from the Global Sustainable Investment Review, 2020).
This is a potential shift we will continue to monitor. At the very least, we believe this debate will contribute
to more inclusive approaches from asset managers regarding ESG investing strategies.
