The costs of implementing ESG depend on the ESG-integration strategies chosen by the fund, but generally may relate to costs associated with bringing in ESG expertise (whether in-house or advisory), conducting or obtaining ESG data and analysis, adjusting portfolio approaches, adjusting mandates, etc.
However not implementing ESG may result in potentially more significant costs over the long term due to impacts on the investment portfolio due to issues such as climate change, poor labour relations, unemployment, energy insecurity, water scarcity, and lack of access to healthcare and education.
Nevertheless, resource constraints create very real challenges for asset owners when implementing responsible investment. This is particularly the case for asset owners that see responsible investment as external to the organisation’s core purpose and practices.
Asset owners can address this barrier by ensuring that their approach to responsible investment is consistent and complementary to their wider investment and organisational objectives.
The following steps help increase clarity and reduce costs of implementing ESG:
- Have an explicit statement on ESG issues in your investment beliefs and ensure these beliefs are shared in an open and transparent way with beneficiaries, investment professionals, and other key decision-makers within the organisation.
- Focus on those issues that are important to your fund and link these to ESG.
- Build on your existing investment processes to deliver and implement your investment beliefs linked to ESG.
- Identify and manage ESG-related issues as an integral part of investment risk management processes.
- Challenge your investment consultants and legal advisers to