How to invest with a sustainable mindset
Summary
Sustainable investing is about more than simply considering Environmental (E), Social (S) or Governance (G) risks. By investing sustainably, investors can support the transformation of the real economy and measure their success in terms of positive environmental and social outcomes in addition to financial returns.
There is no “one size fits all” approach; different strategies are needed to achieve different sustainability objectives and preferred outcomes. At Allianz Global Investors, we see sustainable investing as falling into three broad categories:
As a baseline, all of our strategies comprise active stewardship and an ESG Risk Assessment. ‘ESG Risk Assessment’ means that our portfolio managers have full transparency on E, S and G scores and principal adverse impacts such as CO2 emissions, water use, etc., for each holding in a portfolio and on aggregate. However, ‘ESG Risk Management’ refers to considering material E, S, and G risks alongside other risks when making investment decisions, also known as ESG integration.
Strategies that apply the Integrated ESG (IESG) investment approach
This approach consists of integrating material ESG risk considerations into mainstream investment analysis and requires the portfolio manager to systematically identify companies that have material E, S and G risks. The portfolio manager is free to either divest or continue to hold “risky ESG” companies in a portfolio as long as the expected return justifies the risk. In addition, active stewardship activities (dialogue with investee companies and proxy voting) might be considered to mitigate risks. IESG is seen as an enhanced risk management approach that adds another risk analysis dimension to existing investment processes and can be applied to any asset class.
Strategies that apply a dual-layer approach: A set of sustainable minimum exclusions and one of the following approaches
Our SRI (Sustainable and Responsible Investing) Best-in-Class approach extends mainstream fundamental research by analysing financially material and non-material ESG factors. The portfolio construction is geared towards a superior ESG quality by applying sustainable minimum exclusions (negative screening) and so-called “best-in-class” considerations (positive screening) on the investment universe. These ESG screens guide security selection towards companies with best-in-class or improving ESG quality compared with their peers, while excluding companies linked to, for example, coal, tobacco, weapons, and controversies that may bring significant financial and/or reputational risks.
Our Climate Engagement with Outcome approach uses the power of corporate engagement to influence ESG practices of investee companies in order to pursue a positive real-world outcome, for instance, enabling climate transition. We apply our sustainable minimum exclusions, identify the largest carbon-emitting companies in scope and engage with these companies to enact on climate transition and resilience strategies and target setting. This engagement approach can be implemented in conjunction with other strategies, for example, IESG.
SDG-aligned strategies often adopt a thematic investment approach. We invest in companies that exhibit a certain level of contribution towards one or more of the UN SDGs. Our assessment is both quantitative and qualitative - a quarterly report highlighting SDG contributions on an individual strategy level is available. The SDGs, established by the UN General Assembly in 2015, consist of 17 distinct goals which serve as a global framework and roadmap for action in order to achieve a more sustainable and equitable future. For example, “Food Security” theme-based investments address SDG 2 “No Hunger”. Our approach applies a set of sustainable minimum exclusions as well as the E,S and G factors of investee companies being analysed. In addition, principle adverse impacts are analysed in order to avoid companies with poor ESG practices and those that cause significant harm.
Impact investing creates positive environmental and/or social outcomes that can be measured using key performance indicators against specific goals. “Impact” investments are accessed through private markets (e.g. private equity impact fund of funds, blended finance vehicles) or public markets (e.g. green bonds), with documentation and reporting that enable investors to directly measure and show evidence of associated positive outcomes.
Source: Allianz Global Investors, 2022. Allianz Global Investors su pports the UN Sustainable Development Goals (SDGs).
1. Allianz Global Investors, December 2021.
2. Allianz Global Investors, Sustainable Investment Exclusion Policy, January 2021.
3. Classification according to the EU Sustainable Finance Disclosure Regulation (SFDR).
Information herein is based on sources we believe to be accurate and reliable as at the date it was made. We reserve the right to revise any information herein at any time without notice. No offer or solicitation to buy or sell securities and no investment advice or recommendation is made herein. In making investment decisions, investors should not rely solely on this material but should seek independent professional advice. However, if you choose not to seek professional advice, you should consider the suitability of the product for yourself. Investment involves risks including the possible loss of principal amount invested and risks associated with investment in emerging and less developed markets. Past performance of the fund manager(s), or any prediction, projection or forecast, is not indicative of future performance. This material has not been reviewed by any regulatory authorities.
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Unwrapping the potential of sustainable packaging
Summary
Plastics – and especially plastic packaging – play an essential role in the global economy, as they prevent products from being spoiled, and significantly extend the shelf-life of food. Additionally, the comparatively low weight of plastic packaging contributes to energy and fuel savings, and to reducing greenhouse gas emissions from freight transport. However, the advantages of plastics have to be set against a number of drawbacks, particularly for the environment. The absence of a circular plastic economy, and the leakage of millions of tonnes of plastic material, not only contribute in large part to marine pollution, but also trigger immense economic costs, and billions of USD in negative externalities. Fostering the further development of sustainable packaging therefore not only helps to limit the volume of plastic waste, but also offers attractive opportunities to participate in a market that is predicted to show a double-digit percentage growth rate within the next five years.
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