PLACE FINANCIÈRE & MARCHÉS — Marchés financiers

Patrick van Denzen (TMF Group)

“Some investors are already there”



Patrick van Denzen: “The lack of a consistent means of extracting robust, consistent and meaningful data from all portfolio investments is a considerable challenge.” (Photo: DR)

Patrick van Denzen: “The lack of a consistent means of extracting robust, consistent and meaningful data from all portfolio investments is a considerable challenge.” (Photo: DR)

Many parts of the funds industry are laser focused on ESG right now by means of reporting, advisory, labelling and communication. Prior to the round table “ESG: all you need to know about the new regulation”, which will be held on May 4, we asked Patrick van Denzen, managing director of TMF Group, for its view.

How important is it for the funds industry to take action on ESG now?

Patrick van Denzen. – “Vitally important! The entire global economy is under pressure to meet 2050 carbon neutral targets. As a result, finding ways to support sustainability will see exponential growth in the next years.

As we know, fundraising is a highly competitive space. Going forward, institutional investors, such as sovereign wealth funds, pension funds and university endowments, will increasingly assess, in detail, a GP’s ESG credentials and intentions when evaluating an investment opportunity. The lack of a robust, credible ESG strategy will place a GP at a competitive disadvantage in attracting capital.

We have also seen that focusing on ESG has proved to be advantageous. Those who demonstrate an ESG strategy have proved to be less likely to be impacted by fraud, scandal and reputational damage.

On top of this, despite significant volatility in financial markets in 2020, funds with exposure to sustainable investment themes, e.g., healthcare, well-being, renewable energy, green bonds, circular economy, etc., have generated higher returns compared to non-ESG focused funds, both in bull and bear markets.

It is clear that the allocation of investments into sustainability will require a fund industry that can support this, with the specialist skills and appropriate know-how/services that adhere to regulators’ requirements and meet investors’ aspirations.

How close are we to the point where mainstream investors value ESG credentials over and above absolute returns?

“Some investors are already there. Institutional capital with a social agenda, e.g., sovereign wealth funds, is at the forefront of this change. Most institutional investors have already implemented ESG credentials in their screening and fund selection. Professional and retail investors are more and more interested in new ESG products and have started allocating a component of their savings into sustainable finance. It is only a matter of time for sustainable finance to constitute the majority of investors’ portfolios.

We have not reached that tipping point where most investors value ESG over absolute returns yet. Frankly, we are not there as a society. However, the rate of change within ESG seems to have increased exponentially in 2019 and 2020, and many pension funds are still in the process of reallocating their portfolios toward sustainable investments. So that tipping point is getting closer.

What are the biggest challenges for asset managers and service providers right now?

“Data and standards. The lack of a consistent means of extracting robust, consistent and meaningful data from all portfolio investments is a considerable challenge. Even once a GP has extracted that data, benchmarking, comparisons and presentation are difficult. This non-financial reporting space is new and fast moving. The ability for a fund manager to embrace this, invest in new tools and demonstrate success in these areas is important.

Secondly, there is a big risk of ‘greenwashing’ in the rush towards launching new products and adapting existing ranges of funds already offered. The quality of ESG screening and reporting will differentiate asset managers, which is why professional and competent service providers with tools and expertise in ESG are key to succeed.”