The competing and often contrary missives of environmental, social and governance (ESG) evangelists have long been a sticking point for many professional investors used to more definitive data.
And the recently appointed Franklin Templeton (FT) global head of sustainability, Anne Simpson, said fund managers are right to be wary of unsubstantiated ESG claims.
“Investment managers are strategic, data-driven and analytical,” Simpson said, who have a “healthy skepticism” about the disparate ESG ratings that can throw up completely different findings for the same company.
“Portfolio managers won’t accept [ESG data] that hasn’t had the same level of scrutiny as applied to financials,” she said.
Simpson is leading an initiative at the global investment multi-affiliate business to assemble a data-rich set of ESG tools designed to convert even the most fervent of professional non-believers.
With over 1,300 investment staff scattered across the dozen or so underlying managers covering multiple asset classes, she said the evidence-based approach would be critical in applying a cohesive sustainable investment strategy to the entire group.
Given the broad independence of investment teams, ESG-by-command would probably never fly at FT anyway.
“A better approach is to argue the investment case [for sustainability],” Simpson said.
While the FT sustainable investment tools are still in development, she said they would rely heavily on cutting-edge data analytics including artificial intelligence systems to provide portfolio managers with actionable insights.
The California-based Simpson was on flying tour of Australia and NZ earlier this month, showcasing the FT sustainability model as well as her broader ESG chops to clients and other interested institutional investors.
She said while the still-embryonic sustainable investment movement can point to some early wins – such as forcing independent board representation on fossil fuel companies and tying some executive remuneration to climate metrics – there is plenty of room for improvement.
For example, Simpson said the sector needs to agree on clear definitions as a precursor to any anti-greenwashing efforts while turning investors to positive action rather than negative screening.
“Divestment offers false hope,” she said. “Investors need to roll their sleeves up and get engaged – that’s tougher [than selling holdings] but it has a stronger possibility of making a real impact.”
Simpson is a heavyweight in sustainability circles, joining FT after a 12-year career at CalPERS driving the ESG agenda at the biggest US pension fund.
Moving among elite in academia, politics and corporate worlds for decades, Simpson has held influential positions with regulators, accountancy standard-setting bodies, global financial institutions as well as climate-related and other ESG organisations.
The move to FT was prompted partly to ensure smooth “succession planning” at CalPERS but also by the wide sustainability brief on offer at the US$1.5 trillion multi-boutique manager, she said.
Under a new strategy put in place by CEO Jenny Johnson, a third-generation leader in a still family-controlled business started by Rupert Johnson in 1947, FT has placed its bets on sustainability, alternative assets and digital technology for future growth.
Simpson reports directly to Johnson.
Listed on the New York Stock Exchange in 1971 (although the Johnson family continues to hold almost half of the company’s shares), FT has been acquisitive of late, buying the fellow multi-affiliate manager, Legg Mason, in July 2020 before snapping up Lexington Partners late last year and O’Shaugnessy Asset Management earlier in 2022.