Stock market expert Joachim Klement is sure that ESG criteria lead to better results and less risk. Many private individuals and pension funds see it that way, but with fund managers – especially the American ones – Klement is less sure.
“I can’t stress enough how impressed I am with ESG as a risk management tool. But unfortunately, not everyone shares that passion.
On the one hand, there are individuals, family offices and pension funds who find it useful and necessary for ESG criteria to be included in the decision-making process. On the other hand, there are the fund managers, who I feel are much more reserved.
In Europe, this is still the case. There, a majority of fund managers are determined to include ESG criteria in the investment process and are aware that this benefits the quality of decisions. But there is also a pretty large group that just thinks it’s a crazy craze.
In the US it is even worse. The majority do not see the benefit of ESG investments. And even with the fund managers who say they take ESG seriously, I sometimes get the feeling that they only do it to satisfy the customer, not because they believe in it themselves, but as a marketing tool.
Of course, the sceptical securities houses also have ESG research teams, but when you talk to the main analysts and bankers about how they apply ESG criteria in everyday practice, they look at you with a vague look or say outright that they are not interested.
It must be said that I base this purely on my own experiences from conversations. So I can be wrong, but it will not be very much if you can believe the academics.
For example, a group of Swiss researchers around Vitaly Orlov examined the ESG returns of around 22,000 mutual funds in the US. The trick they used to determine whether fund managers really believed in ESG criteria was by looking at their ESG performance on the one hand and whether they invested money themselves (put the money where your mouth is) on the other.
The results are not very uplifting. The more own money a fund manager puts into a fund, the lower the ESG performance. More strongly, if a fund manager invests more money in a fund and thus owns a larger share of the fund, the ESG performance of the fund will become lower over time.
This indicates that fund managers in the US regularly include ESG factors in investment process because their clients ask for it and/or to attract additional funds.
I do not think, by the way, that these results can be translated one-on-one into the eurozone or the UK. As I said, I think that on average, fund managers in Europe are more convinced of the benefits of ESG investments than their American colleagues.”
