Authored by: Richard Lightbound

    June 29, 2018

    ESG moves towards ‘impact investing’ to become a global investor priority

    Just a few years ago, ESG (environmental, social, and governance) investing was making headlines for its ability to give investors a vehicle that allowed them to align investments with their personal values. Often labeled as ‘impact investments,’ funds and stocks that adhered to ESG guidelines were considered feel-good vehicles—but not necessarily the best options from a returns perspective. These were largely niche solutions targeted at Millennials, liberals, and anyone who put their hearts far above their wallets.

    Oh, how times have changed. That fact was made crystal clear to me when I had the opportunity to meet face-to-face with a large group of Australian investors at an ETF event in Sydney earlier this month.

    I walked in the door expecting the usual conversations with investors that, in this case, ranged from small banks to large pension funds who are interested in exploring the ROBO Global Index Series. In the past, I’ve found myself sharing stories about the rising stars among our index members, the total cost of return of our index-based fund, and exciting research from our strategic advisors. This time it was different. This time, the first question I heard from nearly every investor I spoke with was this: “What is your ESG policy?”

    It’s a fascinating shift to witness, and yet it’s no surprise. Robotics, automation, and AI—or RAAI—is, after all, naturally aligned with all things ESG. Robots being used in agriculture, energy, and recycling help protect the environment by saving water, minimizing the use of pesticides and other chemicals, and transforming natural resources into critical energy supplies. Innovations on the factory floor increase capacity and productivity and help keep humans safe by taking over a majority of the “dangerous and dirty” work that puts us in harm’s way. Advancements in AI are making it possible to transform healthcare, reduce greenhouse gasses, and improve energy storage. The list goes on and on.

    It’s also no surprise that Aussies understand just how powerful that alignment with ESG is—and why it matters over the long term. Living on an island (large though it may be), Australians have long been focused on protecting natural resources and operating everything they do as efficiently as possible. Still, I was quite surprised at the focus on ESG and how rapidly it has become a top priority for corporate and institutional investors alike.

    I suppose I should have seen the writing on the wall. In meetings with investors in the Netherlands, the majority of the large fund managers I’ve met with have a directive of investing only in funds with ESG policies. And this is not a superficial mandate. These investors want not only to know that the policy exists, but they also want to dig into the details to understand how our policy will drive advantages down the road.

    The focus on ESG is in full force in the UK as well. In fact, ROBO Global’s newest ETF partner in the UK has one of the most forward-thinking ESG visions in the industry. The company’s vision is “to encourage positive change in the companies and markets in which we invest,” and their focus on active ownership that uses their “scale and influence to bring about real, positive change to create sustainable investor value” seems to carry through in everything they do.

    The company’s annual report is filled with language I could not have anticipated coming from one of Europe's largest and oldest institutional asset managers. Not a decade ago. Not even two years ago. But the value and importance of ESG has clearly made it a global investment priority for this industry leader, as well as for corporate and retail investors who are striving to not only invest in companies that are helping to improve our world, but who are also seeking to increase long-term investment returns.

    The alignment between RAAI and ESG is a key reason investors eyeing robotics are so keen to talk to ROBO Global. ROBO Global is currently the only robotics index with an ESG policy. The ROBO Global Industry Classification Methodology is designed to identify a universe of technologies and applications that are suitable for inclusion in the index, and our strict selection criteria for index members explicitly excludes companies that do not pass the ROBO Global ESG Policy. It’s the first step (though certainly not the last) toward distilling that universe down to the 80+ companies that our advisory board of industry experts and PhDs in the field believe carry the highest growth and earnings potential—and every one of those companies must adhere to our ESG guidelines.

    Personally, I’m thrilled ESG has grown to become a top priority for investors. As a father, I’m well aware of the responsibility of our generation as we pass this world on to the next. It’s just one reason I’m so passionate about our work at ROBO Global as we help promote the technologies and applications that are truly making our world a better, safer, and healthier place. As an investor and business leader, I know that the potential for ESG investments reaches far beyond the desire to align one’s values with the desire to grow a portfolio.

    I may have been a bit surprised in Australia that ESG was the topic of nearly every conversation. I’m not surprised at all that ESG is delivering on its promise to create a better world while offering the potential for highly competitive returns to investors. It really is a perfect match, and I’m happy ROBO Global is right in the thick of it all.

    By Richard Lightbound, CEO, EMEA, ROBO Global

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