Keesa Schreane [00:00:02] Dear listeners of the Refinitiv Sustainability Perspectives podcast, I would like to thank you for being with us and for being a part of the responsible investing community. Yeah, it was a challenging year for all of us. But on the brighter side, it was also a year of discovery and growth for many, particularly for many in the sustainable investing and ESG world.
Keesa Schreane [00:00:26] 2020 brought a lot of positive changes to the world of ESG and sustainable finance. In this end-of-year podcast, we'll explore a few of those changes as we close season two of our podcast. I want to share just three key takeaways from some of those great conversations that we had with experts and industry leaders in 2020.
Keesa Schreane [00:00:49] So let's dive right in. First of all, we saw a significant uptick in the investment inflows that fuel sustainable finance, and this trend was only accelerated by the pandemic. Now, the first quarter of 2020 ESG funds saw inflows of about thirty-six billion dollars, showing resilience in the face of widespread market volatility caused by COVID-19. Numerous studies prove that companies focused on sustainability demonstrate greater resilience during economic shock.
Keesa Schreane [00:01:20] Now, what's the reason for that? Well, the issue is a really strong risk management instrument. So assets in ESG portfolios may experience less volatility during bear markets and also they may see smaller cuts than their counterparts. So, for example, we conducted a historical analysis to compare companies with higher government scores than their peers. And we also want to compare energy firms using renewable energy. Compare that to their peers who are using fossil fuel and ESG focused assets historically outperformed in both cases. So that really proves the point. By the way, we have added links to both of those research reports in the episode description. So check this out.
Keesa Schreane [00:02:07] This brings us to a really important question, and that is, can a firm really validate a business model that prioritizes short term gains? Even though those gains can look quite attractive, they are still short term and really go against some of the longer-term benefits that we talk about in terms of benefiting society, benefiting the environment and benefiting the corporation, and long term profitability in general. Something to think about. Right.
Keesa Schreane [00:02:36] So as we're looking forward to recovering from the COVID-19 crisis, more and more attention is placed on the green recovery countries across the globe from the US, with our new Biden administration, to the EU, even to China, they're all announcing their ambitious plans for promoting sustainable recovery, which hopefully will help us prevent another crisis or at least another crisis of this level brought on by climate change. And we say that because we know that pandemics are really here to stay, but the hope is that we can mitigate the risks moving forward.
Keesa Schreane [00:03:15] Let's look at the second key point number two. The second thing we discussed a lot in 2020 was climate risk and building climate resilience. It's clear that the potential costs and risks of climate change can't be ignored anymore. Like other challenges we face, including the pandemic and in healthcare overall, the push for human rights and equality, the fight against racism, and preventing food and water scarcity. These problems are systemic in nature. And starting today, we need the collective effort of investors and business leaders, governments, and individuals across the globe to really help us with these issues. And that's why global global efforts like the EU taxonomy, disclosure regulations, corporate commitments to inclusion and even climate action plans are so very important. They really show the partnership of governments and communities and business leaders and individuals.
Keesa Schreane [00:04:24] Now, building successful models that integrate climate risk as well as societal and governance considerations into investment decisions is only possible with a combination of what we just talked about - partnerships - as well as careful management and high quality ESG data. And to ensure the latter, that high quality ESG data are definitive, has made important updates and releases this year. First of all, we enhanced our ESG scoring methodology, addressing the three main industry challenges of materiality, transparency, stimulation, and size bias. We also released the definitive Lipper fund, S.A.T. Scores, which brings together the Lipper fund universe up over three hundred thousand fund share classes and its deep holdings content ESG coverage on over nine thousand companies representing over 80 percent of global market capitalization. That's some really deep content and a deep level.
Keesa Schreane [00:07:16] Finally, trend number three, 2020 has boosted the importance of the S and the G pillars - social and governance. The COVID-19 crisis, the Black Lives Matter movement, climate change movements, and others, reveal numerous cracks in our systems. Deep systemic problems that we have to deal with right now are diversity, inclusion, corporate governance. All these things are just as important as tackling climate change. And their impact on the bottom line is as significant. As a matter of fact, we talk a lot about the interconnectivity of environmental issues, race, class. We actually wrote about those environmental issues and race and class issues and the interconnectedness in a recent LinkedIn article that I released in the summer. So investors are really starting to analyze the consequences of the pandemics, such as shutdowns, layoffs and business bankruptcies. In this case, we can really expect investors to consider more qualitative indicators as part of the social pillar. Examples of that are supply chain controls and employee benefits rates.
Keesa Schreane [00:08:31] Another important aspect to mention is governance, governance is an overarching pillar, and without good governance, good ways to measure and people using the right governance tools, we can't achieve our goals. In a recent series of regional governance reports, we found a positive correlation between high government scores and high social and environmental scores in the Americas, EMEA,and APAC.
Keesa Schreane [00:09:00] ESG data is growing in sophistication and importance. This is the data that investors need to make the best decisions, from the broad adoption of ESG ratings to the emergence of alternative ESG data sources like spatial finance. We are excited about 2021 and the numerous opportunities to make profitable, human-focused, responsible business decisions.
Keesa Schreane [00:09:27] Again, thank you so much for being a part of our definitive Sustainability Perspectives Family. I really appreciate you reaching out to me, sharing your thoughts about the podcast,and also sharing your interest in topics that we can approach in the future.
Keesa Schreane [00:09:41] From our family to yours. Have a restful, safe, and enjoyable holiday season. No matter where and how you celebrate. We look forward to bringing you expert ESG insights and in-depth market analysis once again in 2021. This is the Keesa Schreane. Let's look forward to a healthy, happy 2021 and be well!
