ARLINGTON, Va., May 09, 2016 (GLOBE NEWSWIRE) -- Asset managers need to realize that sustainable practices are going to be a prerequisite for being hired to manage investment mandates in the future, according to an article in Willis Towers Watson’s (NASDAQ: WLTW) annual Global Investment Matters publication. The article says asset owners will increasingly want to understand the broader risks asset managers are running, both at a portfolio and overall strategy level.
“We know for sure that many of the ultimate beneficiaries — pension fund members as well as charities and endowments — are very switched on to sustainability and have strong feelings on the subject,” said Brad Morrow, head of Manager Research in the Americas, Willis Towers Watson.
In the article, the company concedes that the concepts are not clear cut, and this has been an obstacle both to investor adoption and asset managers’ ability to construct and articulate environmental, social and governance (ESG) strategies. The company suggests that any approach starts with consideration of the financial impacts of ESG risks and opportunities, and at a minimum, means that asset managers should consider ESG risks in selecting investments and building portfolios. Another approach can also involve skewing the portfolio toward companies that rate highly on ESG criteria in the belief that these factors are not fully reflected in current prices. Furthermore it can involve targeted thematic investments, for example, investing in sustainable real estate on the basis that markets are not fully recognizing the opportunity presented by the shift to a low-carbon economy, according to the company.
“Whatever approach is taken, it needs to be underpinned by effective stewardship of the assets. Through effective voting policies and engagement, asset managers can influence companies to raise their game and manage their businesses more sustainably,” said Morrow.
Also in the article, Willis Towers Watson explores the most controversial aspect for investors: whether to accept that a focus on long-termism and sustainability entails preparedness to forgo current gains for better future outcomes.
“The issue of whether sustainability means sacrificing returns is divisive,” said Morrow. “Although early studies indicated the inclusion of ESG factors created slight underperformance, a growing body of evidence suggests their incorporation can help the portfolio match or enhance returns from non-ESG portfolios. But it’s not clear cut and often suggests governance is the key factor explaining superior results. Other studies suggest company engagement leads to superior risk-adjusted returns, which again points to good governance as a key factor.”
According to Willis Towers Watson, asset owners will look to collaborate with other entities to ensure they use their collective voice to effect positive change.
“The entire investment industry needs to rise to this challenge,” said Morrow. “Increasingly, clients are demanding it. They are under pressure from their members and sponsors, from regulators and industry bodies, as well as the increasing body of evidence showing ESG risks are rising and need to be understood and managed better.”
Global Investment Matters covers topical investment issues, and this year includes the following articles:
- “Debunking the outsourced CIO myths” — The six most common misconceptions and why they should be challenged
- “Building bridges” — Governments are under pressure to produce more compelling investment cases for their infrastructure projects
- “Thematic investing in an era of uncertainty” — The challenge of investing in an ever-changing world
About Willis Towers Watson Investment
Willis Towers Watson’s Investment business is focused on creating financial value for institutional investors through its expertise in risk assessment, strategic asset allocation, fiduciary management and investment manager selection. It has over 850 associates worldwide, assets under advisory of over $2.2 trillion and over $75 billion of assets under management.
About Willis Towers Watson
Willis Towers Watson (NASDAQ:WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 39,000 employees in more than 120 countries. We design and deliver solutions that manage risk, optimize benefits, cultivate talent and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com.
Media contact Ed Emerman: +1 609 275 5162 firstname.lastname@example.org
Source:Willis Towers Watson Public Limited Company