Melanie Adams, VP and head of corporate governance and responsible investment at RBC Global Asset Management, has called for more regulation around corporate disclosures on sustainability.
She said this would “go a long way” in helping investors understand and assess businesses’ ESG credentials.
Here, Adams answers ESG Clarity‘s questions:
There is a lot of criticism and negative rhetoric around ESG right now. What is being misunderstood? What is valid?
ESG integration is about holistically assessing issuers to help identify material ESG risks and opportunities to inform investment decisions and hopefully enhance long-term risk/return profiles. It is not about imposing a set of personal views – this is a specific niche part of responsible investment, known as socially responsible investment. Unfortunately, the two concepts are being conflated and confused, and ESG integration is being mistaken with socially responsible investment. What is true is that ESG integration is a complex area that requires thoughtful consideration and cannot be simplified easily.
When investors are asking asset managers about ESG integration what is key?
It is important that investors understand the process of ESG integration. ESG assessments can vary by asset manager, but it doesn’t mean one way is right over another. Investors need to understand how material ESG factors are assessed, whether the asset manager engages with companies and boards, how they vote their proxies and how they work with other industry participants.
What is important to ask regarding proxy voting and engagement? Are there any trends in this area?
Investors should ask how the asset manager conducts engagements, the frequency, the types of issues raised, and the outcomes expected. On proxy voting, investors should ask how the asset manager votes proxies, whether they have custom proxy voting guidelines and how this is administered.
How rapidly are companies adopting sustainability disclosure?
There is strong momentum towards companies adopting sustainability disclosure and there is still a long way to go. Standardization still does not exist for corporate disclosures, which would go a long way in helping investors assess these factors.
Which regulatory developments would you like to see?
The regulatory development that we would most like to see is continued focus on corporate disclosures. In addition to this disclosure helping in investment decision making, it is challenging for asset managers to meet their disclosure requirements if corporations are not providing the data.