JP Morgan recently held a very interesting Socially Responsible Investment conference. The fact that JP Morgan has enough interest from its investor clients to hold a two day SRI conference is indicative of a marked change in how the investor community views environmental, social and governance issues and their implications for investment portfolios.

The conference was well attended, with a range of sectors represented from telecoms through real estate to engineering and industrial machinery, and covering a wide span of geographies. As you would expect, all the companies presenting, including Hammerson, had strong sustainability programmes with clear links through to business strategy. The conference also provided me with an opportunity to speak to some of our investors on a 1-1 basis about Hammerson’s sustainability strategy and targets.

So what were my key take always?

1. Basing your sustainability strategy on the material issues of your business and linking it clearly to business fundamentals is critical.  If there isn’t a clear relationship here it’s hard to make the business case work.
2. Green bonds (a bond issued to fund projects that have positive environmental and/or climate benefits) were a hot topic of conversation.  $41bn of green bonds was issued in 2015, and I have no doubt this market will mature rapidly, particularly with the work of organisations such as the Climate Bonds Initiative. It’s clearly one to watch, however there are still some outstanding questions for me around how the capital raised is allocated and how that allocation is reported.
3. Another key topic was alpha, and in particular, does an ESG focused investment strategy generate any?  This debate is similar to the old “Will a green building let/sell for more money?” argument. There are signs that over different time periods, ESG-focused indices outperform others. However, can we link that outperformance directly to ESG? Or is it about quality of management more broadly? Or a variety of other potential factors?

I think this misses the point somewhat; the way to look at it should be, whether by not having an ESG strategy as part of your wider business model increases risk. Any outperformance would presumably be arbitraged away by the market fairly quickly so a focus on reducing risk rather than chasing premium might be more fruitful.

Altogether a really interesting couple of days.

This blog was originally posted here.