Calastone Talks ESG w/DWS's Kooy
Fund technology firm Calastone posted a Q&A with DWS's Reyer Kooy, who sees, "environment, social and governance (ESG) themes becoming a strategic focus for corporate treasuries." Kooy explains, "Covid-19 has led companies to think about their role in society and their goals in a very different way. They are thinking much more broadly about stakeholders and how their businesses handle ESG issues. Regulations are part of this trend too. The CFO (chief financial officer) and corporate treasurer naturally want to maximise their contribution to ESG priorities by investing responsibly. Hence the interest in the ESG footprint of money market funds (MMFs). Treasurers want to understand the ESG profile of the assets that make up such funds -- how they look through an ESG lens. This means that investment management firms like ours are deploying sophisticated ESG engines to score the underlying securities we are buying on behalf of our mutual funds and investors. We are able to provide transparency on that on a line-by-line basis, showing the ESG score on individual securities, but also at the headline level, showing the overall ESG score of their MMF." He tells Calastone's Ed Lopez, "There are not that many [ESG] MMFs out there. But increasing numbers of treasurers find ESG to be important to their investment criteria. What we've found within MMFs is that there is a small compromise in performance for full ESG MMF strategies. It's important to note that in MMFs the predominant driver of investments is capital preservation, then liquidity, then yield -- in that order. At the moment we do not see a preference for ESG investments over performance. The evidence so far is that while yield is still the least important, if ESG takes yield down by a fraction then investors continue to prefer that yield over ESG criteria.... That's not to say that people don't care and are not interested -- they are -- but given that trade-off the majority still appear to be going for yield, evidenced by the fact that there are very few ESG MMFs out there. But we see movement and there is definitely a groundswell of interest in ESG. Eventually we will reach a tipping point." Kooy adds, "But in the meantime, we understand that there is this tension between desiring -- and in many cases passionately desiring -- an ESG lens on an investment policy, and on the other hand maximizing the yield of the portfolio. So, our own determination has been that we are not ready to fully repurpose our funds to ESG and implement this into our MMFs and give them the ESG badge -- because we have this concern about whether all of our investors will necessarily follow us."
