PLANSPONSOR - June/July 2018 - 48

DB FOCUS
vice president and director of ESG.
" We created an ESG committee with
representatives from across the firm,
including management and the investment
teams, and ESG considerations are
embedded in the fundamental analysis
itself, rather than an overlay or afterthought, "
she says.
" We don't have stand-alone ESG
products, but many of our strategies score
well on ESG, " she continues. " Our long
time-horizon aligns well with corporate
sustainability as part of the quality pillars
of many of our teams. And while they may
not call it 'governance,' analysis that they
have been doing forever aligns well with
governance from an ESG perspective. "
Loomis, Sayles has developed a tool for
carbon footprint analysis in-house, and
relies on rankings from MSCI, as well as
several other vendors, to ensure complete
coverage of target companies.
During the Obama administration,
the Department of Labor (DOL) issued
guidance that gently encouraged sponsors
of Employee Retirement Income
Security Act (ERISA) plans to consider
ESG investing. More recently, however,
the Trump DOL issued new guidance that
plan sponsors should " avoid too readily
treating ESG issues as being economically
relevant. "
Regan says, " The most recent DOL
policy has puzzled some sponsors, but
these announcements are getting [them]
to ask about ESG, and I see it migrating
into conversations with DB [defined
benefit] and DC [defined contribution]
plans. "
ESG investing is well-established in
Europe and at U.S. endowments and foundations,
not-for-profit groups, and public
retirement plans, but is only gathering
interest slowly among U.S. retirement
plans subject to the fiduciary requirements
of ERISA, says Michael Davis, head
of U.S. institutional defined contribution
at T. Rowe Price Group, Baltimore.
For their part, some consultants
are nudging investment managers and
sponsor clients toward ESG. At NEPC, for
48 PLANSPONSOR.com June-July 2018
Does ESG Investing Affect Returns?
- MSCI World Index ESG Leaders - MSCI World Standard Index
180
160
140
120
100
80
60
40
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Note: Index levels of MSCI World Index ESG Leaders vs. MSCI World Standard Index,
December 31, 2007, to June 1, 2018. Based on returns net of dividend taxes, and rebased
to 100 at December 31, 2007.
" Unfortunately, the U.S. is an outlier
on how we approach ESG. ... The
regulatory environment is such
that there is a fear of being sued. "
example, ESG is a part of every due diligence
meeting with managers, and the
firm works with MSCI to rate managers'
portfolio holdings for their ESG alignment.
" Unfortunately, the U.S. is an outlier
on how we approach ESG, " says Thompson
of Willis Towers Watson. " My role has
been integrating the manager research
process and trying to get clients to think
about ESG and implement it in some way.
KEY POINTS
* Investing in companies with a positive ESG orientation can return
as much or more than conventional methods, while reducing the
risk of negative corporate surprises.
* Plan sponsors have several options for taking an ESG stance, such
as passive ESG index products and dedicated active ESG strategies.
* ESG may show an advantage in times of volatility, as index companies
have applied better governance to manage their strategic risks.
But the regulatory environment is such
that there is a fear of being sued.
" The whole point of ESG is raising
good questions, because they are selfevident
from the perspectives of opportunity
and risk, " he continues. " These
are soft questions, but companies that are
better able to execute on these concerns
are more likely to have healthy businesses
for the long term. " -John Keefe
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