Danilo Pone, CIO at the Italian pension fund for Biological Sciences ENPAB, points to regulation as the key driver to help ETFs meet investors' sustainability demands.
Pone says: "The impending deadline of 10 of June of this year on which all member states of the European Union must implement the 2017/828 Directive, on ‘encouraging the long-term commitment of shareholders' looms. Under this directive, subscribers to an ETF will know the degree of involvement of managers in the governance of those companies in their portfolio while also investment vehicles must disclose their voting policies and various activities at their shareholders' meetings.
"These rules will increase the information obligations of ETFs on the one hand, and on the other the involvement or engagement of investors in a company's life".
Verification of real and effective ESG remains a major challenge for investors and will drive the selection of investments”.
Pone says that while ESG factors are increasingly becoming a key part of the portfolio selection, PMs and individual investors' awareness of these factors is growing too. He says: "One might anticipate capital outflows from those corporate strategies that are less sensitive to modern ESG methods, models and reporting".
Pone says he expects an increase in the number of new investment strategies in the ESG or SRI arena and believes that sometimes it is easier to launch a new product that meets ESG investor demand rather than adhering those principles to an existing one. He adds: "I think a new fund might prefer vehicles that incorporate ESG, but let's not forget that there are already many assets under management and these will need to be re-packaged and re-structured over time.
"We have already seen some major European sovereign wealth and pension funds roll into ESG friendly assets over a period of multiple years. It is a process and will certainly change selection preference, but little in terms of methods. Verification of real and effective ESG remains a major challenge for investors and will drive the selection of investments".