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Sustainability within multi asset strategies

M&G Investments’ Maria Municchi talks to Wealth DFM about balancing sustainability and ESG requirements with the need for financial returns within multi asset portfolios

Wealth DFM: Maria, how reliant are you on third parties to help you to make judgement on the ESG credentials of companies you are researching? And how much does qualitative work complement this initial screening process within multi asset strategies?

MM: Over the last few years we have seen an incredible evolution of the third party data available to fund managers. This goes from the governance side to the social and the environmental, which is another area that has seen an incredible amount of growth in terms of data availability and data type.

If you think about all the third party research that is present in the market today, we’re definitely seeing a level of consolidation. The way I see it is that we’re still seeing some differences across third parties and the way they construct their ESG ratings or scores. This is fine as long as, as fund managers, we understand M&G Investments’ Maria Municchi talks to Wealth DFM about balancing sustainability and ESG requirements with the need for financial returns within multi asset portfolios Sustainability within multi asset strategies the methodology and what the difference is across the range of providers.

The benefits of using a third party are that the coverage it gives us is really large. For multi asset investors like us for example, which operate across different asset classes, it can be quite beneficial to have an initial coverage like this which is so broad. It enables us to cover all the different indices, different markets and different asset classes. Then we need to look into the detail of the ESG characteristics, to really look under the bonnet.

First of all, it’s key to understand the methodology and how this differs across the range of third parties. Also when needed, to dive into some of the key issues that these ratings might have identified and try to understand how the companies respond to that. Sometimes we use these as ideas for engagement with the company to try to find out more about some of the ESG issues that the ratings or scores might have identified.

Finally, there is an area of our portfolios in particular that is dedicated to positive impact assets. This is an area where we’re looking not only to deliver investment returns, but also to achieve some sustainability outcomes being environmental or social. In this part of the portfolio, our ESG analysis becomes a lot more qualitative.

We would use the third party very much as a starting point here. But then we go into the details of these ratings and scores and using different sources of information to actually validate what the ESG characteristics of these investments actually are. This is because we’re not only trying to achieve a financial return, but we’re also trying to achieve different sorts of outcome as part of this core part of the portfolio. It tends to represent between 20% and 50% of our overall portfolio of our sustainable multi asset strategies.

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