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hat ESG information do asset managers use when making invest- ment decisions and how do they use it? Where do they get ESG information, especially if company disclosures are not sufficient? How


and why do investors seek to influence ESG- related company activities through engagement and proxy voting? To answer these questions, NIRI convened a panel


of investors and experts for a general session segment, “An Asset Manager’s Perspective on ESG Investing,” at the 2023 NIRI Annual Conference. Dan Nielsen, who was Managing Director, ESG at Riveron at the time, moderated a discussion with John Hoeppner, Head of U.S Stewardship and Sustainable Invest- ments at Legal & General Investment Management America; and Cynthia McHale, Program Director at Ceres Investor Network. (Nielsen is now Adjunct Professor for ESG Integration at the Loyola University of Chicago Quinlan School of Business.)


Assessing the ESG Moniker Panelists weighed in on how they view the term “environmental, social and governance (ESG)” and how it matches the issues they deal with in this area. “Our investment practices are highly focused on


what is material to investors’ buy/sell and valuation decisions,” Hoeppner said. “However, from where I sit as head of U.S. stewardship, I’m trying to look at raising minimum sustainability standards across the market. My definition of ESG is much broader. It isn’t looking at shorter term material ESG; it’s looking at systemic concepts such as biodiversity or deforestation. Tat’s why the definition of ESG, even at our firm, depends on the purpose.” Hoeppner indicated that these issues are critical for a company’s long-term performance. McHale advocates a larger rethinking of the ESG


name. “We are moving away from using the term or the acronym ESG because it may lead to confusion,” she said. “Special interest groups and politically motivated groups are conflating a lot of different concepts into one limiting three-letter word. “We are talking with companies, investors, and regulators about specific material risks such as


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climate risk, water risk, or biodiversity loss risk. But the term ESG has been hijacked by different inter- ests to predominantly describe social issues. While these social issues are important, such a narrow lens excludes other types of material financial risks that our stakeholders are concerned about.”


ESG Scorecards Do ESG scores matter? Yes, up to a point. Hoeppner explained, “If you are getting a good


score from some leading ESG data providers, that is a really good benefit. Every time someone builds an index or investment process and explicitly uses that data, it will tilt toward your company and give you more exposure, and that’s a good thing. “But most active managers or index managers have


their own way of thinking about ESG assessments. Tey’re going to use the underlying components which they believe are most relevant to their situation. Tey may or may not be telling you if you’re doing well on an aggregate ESG assessment. “Ask investors if they are creating their own ESG


assessment and if they can share it with you. You will get clear answers from investors who really value ESG and vague responses from others. “Every public company in this room today has a


Legal & General ESG score that is in the public domain,” Hoeppner said. “Tat is our view of how you perform on 34 specific indicators that we think reflect best practice. Tey include metrics such as if your company has a combined Chairman/CEO position, level of disclosure on political lobbying, number of women up on your board, emissions, overall disclosure scope, etc. “Often people just want to jump right to the score.


But to me it is those 34 underlying indicators that help me understand if your company is above or below what we believe are ‘red line’ minimum standards across the board. “You might ask, ‘How did the investment analyst


making buy/sell decisions use that score?’ Well, they are aware of it. But their purpose is different. I’m try- ing to raise minimum standards, while an analyst is trying to outperform a benchmark measure over a short-term period. So inside our organization your ESG score is interpreted in different ways depending on how it is used.”


niri.org/ irupdate


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