Transparency, impact and engagement: winning combination for the future of listed asset management according to Hervé Guez in his speech at the PRI Digital Conference 2021

Published on 10/20/2021 News

From 18 to 21 October 2021, the PRI Digital Conference was organised by the United Nations Principles for Responsible Investment (UNPRI), with the support of Natixis Investment Managers. Hervé Guez, Mirova's Head of Equity, Fixed Income and Social Impact Investing, was honoured to be invited to share his vision on the future of equity markets over the next ten years during a plenary session on 19 October.

Mirova

European SFDR Regulation: a regulatory step in the right direction 

While it may seem that the subject of ESG1 integration in listed investments is now a given – there is even talk of mainstreaming ESG – Hervé Guez recalled that there is still no common definition of this notion and that the realities of application remain very different from one financial player to another.

In Europe, the entry into force of the SFDR (Sustainable Finance Disclosure Regulation) aims to harmonise practices in the sector by requiring financial players to be more transparent about how sustainable development objectives are taken into account in their funds. The "Article 8" classification indicates that environmental, social and governance elements are considered in the investment process, although this is not its central point. Today, the integration of ESG criteria has become the norm, in particular to seek to limit risks and maximise performance. The "Article 9" classification, on the other hand, goes further since it applies to products with a sustainable investment objective. This clearly shows the boundary between an approach that integrates ESG criteria, among others, and an approach that places them at the centre of its investment process and sets objectives. It is this second approach, materialised by SFDR as "Article 9", which in our view qualifies as impact investment.  

A few months after the SFDR regulation came into force, Morningstar published an initial study in which it estimated that funds classified as Article 9 represented 2.7% of the total assets of European funds, compared with 20.9% for Article 82. According to Mirova, this crucial distinction, which makes it possible to distinguish between integration and impact investment, is rightly in line with future trends: we have thus categorised all of our funds as "Article 9", i.e. with the objective of seeking impact, in accordance with our role as a mission-driven company3.

ESG integration and impact: desperately seeking for standards and data

Improving transparency, but also reporting, will therefore be key for the decade to come, as Hervé Guez pointed out during his speech at the PRI Digital Conference. Faced with the threat of greenwashing, the harmonisation of global standards would not only allow a better global understanding of the issues for investors, but also a greater readability of the offer. This need for standards and methodologies is valid for the carbon measurement of portfolios as well as for issues such as biodiversity and social inclusion, which are also becoming urgent to address and measure. 

The question of data is central when it comes to measuring impact: depending solely on data providers is not enough. Therefore Mirova has developed its own ESG analysis methodology and implemented an active voting and shareholder engagement policy, as our CIO pointed out. In addition, as a pioneer in sustainable finance, we make it a priority to take part in market initiatives aimed at pushing regulations towards a more sustainable economy, but also to participate in the development of innovative tools, such as the first tool for measuring the impact on biodiversity.

Contribute to structuring the market through active management4 

We consider that the primary role of portfolio managers is to allocate the capital entrusted to them to companies and projects that provide solutions to sustainable development issues: our management teams practice active, long-term management only. Hervé Guez insisted on the need to combine active management with the setting of impact objectives and shareholder engagement. He feels that the impact targets are essential for measuring the effectiveness of the investment strategy from an extra-financial point of view. As for shareholder engagement, in which Mirova has been very active since its creation, Hervé Guez sees it as a genuine lever for systemic transformation. He also stressed the need for investors to align their engagement policy, their voting practices, and their investments. In parallel, on the fixed income market, engagement with green and social bond issuers helps with its structuration.

[1] Environmental, Social and Governance
[2] Source: Morningstar, May 2021
[3] Introduced in France in 2018 under the Pacte Law, a ‘société à mission’ company must define its "raison d'être" and one or more social, societal or environmental objectives beyond profit. The purpose, and objectives aligned with this purpose, must be set out in its Articles of Association. The Articles specify the means by which the execution of the Mission will be monitored by a Mission Committee (a corporate body distinct from the board of directors which is responsible for monitoring the implementation of the mission with at least one employee.) An independent third party then verifies the execution of the Mission, via a written opinion which is annexed to the report of the Mission Committee to shareholders and made available on the website of the company for a period of five years.
[4] Active management is based on regular reallocation of the portfolio through discretionary decisions or decisions based on quantitative models (risk management).
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