Helping investors cut through the noise with data and expertise

ALBERT Tse, who leads Amundi's South Asia business, remembers a time when the closest thing to ESG awareness was the seminal climate change presentations by former US vice-president Al Gore, back in 2006.

The world was a different place back then, and most asset managers were fully focused on maximising returns. Even as the climate became a hot-button topic, issues like sustainability at large and issues such as social impact took a backseat in the finance world.

The following 10 years did not bring much change. Events such as the Global Financial Crisis or September 11 attacks meant that regulators were up to their eyes in managing the ensuing fallouts.

Compared with the landscape 15 years ago, the understanding of ESG in Asia today has grown by leaps and bounds, says Tse. Institutions and retail investors are becoming more conscious of the consequences of their decisions, placing early entrants in the responsible investment space like Amundi in a prime spot to guide the conversation.

In Singapore, the Monetary Authority of Singapore's 2020 guidelines on environmental risk management sparked a shift in the finance industry.

"Other institutional asset owners also saw the opportunities because less and less people are debating whether responsible investments will compromise returns," says Tse. "I think more of them are discovering that if you have the experience, have developed sound investment framework and have access to relevant data, you may outperform."

But even with the advancements in ESG within the last three years, the industry has been growing unevenly.

Some investors are armed with a sophisticated understanding of ESG strategy, while others struggle to even find where to begin.

With its track record of responsible investments and proprietary technology, Amundi sees an opportunity to help clients at all stages navigate the fast-paced landscape.

Responsible investment was one of the four founding pillars of Amundi when the group was created in 2010, says Tse. As at end-December 2022, the firm had 800 billion euros of responsible assets under management (AUM) - roughly 40 per cent of 1.9 trillion euros of total AUM.

The firm offers a range of responsible investment solutions, from advisory to investment solutions and services, that draws upon years of research.

"This is not something created or achieved overnight, and was not without its challenges," Tse shares.

"Given the vast amount of existing responsible approaches and strategies, we understand that ESG can appear like a new frontier for some clients. We see it as our duty to deliver long-term sustainable value to our clients and stakeholders, and we believe we have an important role to play in the financial ecosystem."

Driven by ambition

Even from the beginning, Amundi has adopted long-term strategies to capture opportunities in the emerging ESG space.

The firm decided to join the Net Zero Asset Managers initiative in July 2021, which requires the commitment of supporting the goal of net zero emissions by 2050.

Wishing to go further and deeper, Amundi announced in December 2021 its comprehensive ESG Ambition 2025 plan.

It outlined three objectives: to ensure its savings solutions offering goes even further in terms of responsible investment; to call upon more companies to define credible alignment strategies for the Net Zero 2050 objective; and to ensure the support of its employees and shareholders in its new ambitions.

The plan builds upon a steady foundation - Amundi, for instance, has already integrated ESG criteria across all its active management processes in open funds1. It developed its own ESG analysis framework and scoring methodology to aid its assessments.

"We will not only finance the world as it is today, but finance the world as it should be, so we play an active role in driving the energy transition and addressing social cohesion," says Sylvia Chen, the firm's Head of ESG for South Asia.

Chen says the integration of ESG criteria is based on the conviction that issuers with a strong sustainable development policy are able to manage regulatory and reputational risks better, in addition to being more operationally efficient.

Stewardship is also an integral part of Amundi's responsible investment strategy, she adds. The firm has committed to expanding, by 2025, its climate-focused stewardship activities to 1,000 additional companies.

Technology at the fore

Asset managers like Amundi are stepping up their ESG drive as regulators all over the world wake up to the realities of a rapidly changing environment, and increasing calls for social responsibility.

But such fast-paced changes have thrown up curveballs for the industry as well.

"The investment management industry is facing profound changes due to forces at play, in particular new and increasing ESG regulatory requirements, and increasing demand and levels of sophistication from clients," says Tse.

In this situation, the clear advantage goes to investment managers with the technological capabilities to integrate, process and report on ESG data and criteria.

Clients have several pain points when dealing with data. The challenges range from data sourcing and management, to making sure the ESG methodology is robust.

Amundi jumped on the opportunity to come up with a scalable solution to meet these needs. Today, some clients are using the firm's ALTO Sustainability tool, designed to help investors easily access and integrate sustainability data to align portfolios with their ESG and climate goals.

"Broadly speaking, firstly, ALTO* Sustainability gives users the data and tools needed to consolidate ESG and sustainable analytics; secondly, investors can use the ESG data in the front-to-back workflow for portfolio analysis and design, compliance control, regulatory requirement and reporting," says Tse.

The launch of ALTO* Sustainability is one of the objectives set forth in the ESG Ambition 2025 plan.

"In an increasingly complex and competitive environment for responsible investment players, technology can be a strong ally for asset managers," says Chen.

With data set to drive the development of ESG initiatives, Chen is excited about how artificial intelligence (AI) will change the way investments are done.

For instance, concerns have surfaced about the quality of ESG data provided by rating agencies. These concerns include the high degree of subjectivity in the choices made by rating agencies on ESG criteria, and how the agencies rely heavily on information provided by the issuing companies themselves.

AI is a potential game-changer that investment managers could rely on, owing to its ability to analyse massive volumes of non-standardised information.

Machine learning, combined with algorithms, could be used by managers to design, construct and optimise portfolios, Chen points out.

"These advanced coding capabilities are helping fund managers to select investment universes, and integrate various optimisation engines and risk models to, ultimately, make better decisions faster," says Chen.

The future of responsible investment in Asia remains bright, especially as the region tackles fundamental issues such as its transition away from coal production.

Amundi's clients are demonstrating their long-term commitment, says Tse, even as the broader market becomes more volatile by the day. In fact, recent events have led them to focus on longer term strategies such as quality assets underpinned by strong ESG values, and less on technical and short-term trends.

"We do believe that the responsible investment trend will continue," says Tse. "It's an imperfect journey, but this period may well be the rebalancing incident that is needed to steer the market away from the not so ESG-compliant products, to the more ESG-compliant products."

Brought to you by