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ESG leaves Munich’s fund buyers cold

While the majority of fund selectors in Sweden, Finland and the Netherlands firmly believe in the long-term benefits of selecting funds based at least partly on the basis of their ESG-merits, their peers who attended Expert Investor’s forum in Munich last week beg to differ.

Just a fifth of forum delegates said they plan to increase their allocation to ESG-themed funds or ETFs over the next 12 months, and a third do not even use such funds. This compares to more than 80% of Swedish investors who plan to increase their, in many cases already significant, allocation to ESG funds, according to Expert Investor data.

Two thirds of Finnish fund buyers, for their part, believe applying an ESG-filter enhances investment performance. Though research indeed points in that direction, investors in Munich remain sceptical. Bjorn Esser, a portfolio manager at German asset manager MainFirst, argued that excluding profitable sectors such as alcohol and tobacco restricts return opportunities.

Beer and cigarettes

“Alcohol and tobacco companies are stable growers within the food and beverage sector. You exclude such companies, even though they will in my view stay popular because there is a lack of opportunities on the bond side,” said Esser. “How does this not compromise your return prospects?”, he asked Katie Stafford of Schroders, who was discussing the integration of ESG criteria in global equity portfolios.  

Stafford responded that, naturally, an ESG fund is not an ESG fund if it only excludes unprofitable companies. “It’s not an investment decision not to invest in sin industries,” she said. And most alcohol and tobacco companies may be profitable now, as governments around the world are trying to discourage the use of the products they make, it’s by no means a given that this will endure.

“And because we look at so many stocks, [the MSCI World index alone has 118 consumer staples stocks], excluding some companies shouldn’t be detrimental to our returns,” she added.

Here you can see a full overview of delegate voting results from Expert Investor Deutschland.

And here you can see a slideshow of photos taken at the event. 

Part of the Bonhill Group.