The power of clean energy: an interview with Dr. Chris Mellor CFA at Invesco

A Wealth DFM interview with Dr. Chris Mellor CFA, Head of EMEA ETF Equity & Commodity Product Management at Invesco

Wealth DFM: Chris, could you start by explaining how Invesco approaches ESG

Chris Mellor: Invesco has a very long history of responsible investing. Some of our investment teams started running the first sustainable mandates back in the 1980s. That’s almost 40 years of history. We take a serious approach to this, as you expect from a large investment manager like ourselves with a significant ESG team of specialists, as well as a clear proxy voting and engagement programme.

Invesco is a $1.4TN asset manager with around about a quarter of our assets passively managed in both exchange traded funds (ETFs) and index portfolios. The engagement policy and the proxy voting policy applies to those passive portfolios just as it does to actively managed portfolios.

In this respect, you could say that you get the best of both worlds with Invesco. A client’s portfolio may be invested in passively managed ETFs, for example, that part of the business that I work in. However, we’re benefiting from the broader reach of the Invesco analyst teams for engagement and assessment that come with being part of a larger asset management business.

Wealth DFM: How are investors approaching ESG within the ETF space?

Chris Mellor: When you look at ESG developments in ETFs, it is the strongest growing area of the ETF market. Recently it has seen in excess of $40BN of net new assets, which makes up around about half of all EMEA ETF flows this year.

If we look back to last year, about 40% percent of all new inflows into ETFs in Europe went into ESG. And where we are today is around about $150 billion of assets under management, which makes up around about 10% of the total assets in the European domiciled ETF space.

To put that into context by looking at the scale of growth, that’s up from only about 4% of ETF assets at the end of 2019. It’s been incredible growth.

In terms of the growth in ESG ETFs there’s a wide range of investment options. The number of ESG ETFs has risen from less than 100 only a couple of years ago to 250 or more today. If we look at the development process, the earliest ESG ETFs were very much dark green, very specifically focussed SRI-type of ETF. They had very broad exclusions based on ethical grounds, as well as excluding stocks or selecting stocks with very tight parameters based on ESG scoring or ESG performance.

When we look at the market today, that is evolving. Today, less than half of all ESG ETF assets are actually in those darker green strategies. The growth is happening not only in dark green, but also in the lighter green ESG approaches. An example of this is the Invesco World ESG Universal Screened ETF range that we’ve launched over the last few years, which has been designed as a core beta replacement strategy.

They apply key ESG exclusions on an ethical basis and they also weight towards the stocks with better ESG credentials. They’re not excluding nearly as much of the starting universe. The result of this is a meaningful improvement in the ESG scores but also a meaningful reduction in important areas such as carbon intensity. At the same time, with much lower tracking overseas, the standard on non EU benchmarks than you’d get with the sort of darker green approach, we’ve certainly seen a lot of appetite for that sort of investment from newer investors in the space.

The other area is that much more recently, we’ve seen a significant number of launches in the more climate conscious ETFs. This includes both specific thematic ESG products, like the clean energy, but also things like the broader Paris-aligned benchmark products, which we could describe as the next step in ESG. They still give broad market exposure, but are selecting stocks based on their commitments to reducing carbon emissions in order to meet the Paris-aligned goals of zero carbon emissions by 2050.

Continue reading article…

Featured News

This Week’s Most Read

  • Price of scarcity: Central banks are driving large valuation premiums on assets with limited supply

    By Charles-Henry Monchau, CIO at Syz Bank It is important to understand the concept of scarcity to better understand its mechanics and its impact on markets. Scarcity refers to the

  • Why now is the right time to invest in Japan

    By Masakazu Takeda, lead portfolio manager of the Japan Focus All Cap strategy at SPARX Asset Management The issues that have plagued Japan over the years are now at the doorstep of

  • Why high yield bonds could be the next ESG frontier

    By Lila Fekih & Mark Remington, Co-Portfolio Managers of the New Capital Sustainable World High-Yield Bond Fund at EFG Asset Management  Equities have garnered the most attention in the ESG

  • Fundsmith hints at bumpy ride

    Terry Smith’s annual letter to shareholders reports a slight underperformance of the MSCI World Index over one year Despite the value rally, quality stocks outperformed in 2021 Smith says unexpectedly

  • Brooks Macdonald Funds under Management hit £17.3bn

    Brooks Macdonald today publishes an update on its Funds under Management (“FUM”) for its second quarter ended 31 December 2021, together with a Trading Update for the half year. FUM

  • Ninety One appoints Juliana Hansveden

    Hansveden to develop emerging markets sustainable equity capability Ninety One has today announced the appointment of Juliana Hansveden, CFA, as Portfolio Manager, Emerging Markets Sustainable Equity. In this newly created

  • Man GLG’s Atherton: Governance revolution in Japan like the UK in the 80s and 90s

    The ESG-driven corporate governance revolution in Japan is creating investment opportunities similar to those in the UK in the 1980s and 1990s, says Jeff Atherton, manager of the Man GLG

  • US December CPI inflation rises 7% from a year ago

    David Goebel, Investment Strategist at Tilney Smith & Williamson, the wealth management and professional services group, comments on the latest US CPI inflation data: US December headline CPI inflation rose

  • BlackRock launches two new active Climate Action funds

    The BGF Climate Action Multi-Asset Fund and the BGF Climate Action Equity Fund leverage BlackRock’s deep expertise in active sustainable investing with the objective of generating positive environmental impact.  As

Wealth DFM