ESG Investing - Part I
PGIM experts join David Hunt to explore trends across the ESG investment landscape.
During “PGIM In Conversation: ESG Investing Part II,” Host and PGIM’s Chief Executive Officer, David Hunt, welcomes back Lisa Davis, Portfolio Manager for U.S. Impact Investing at PGIM Real Estate; Eugenia Jackson, Head of ESG Research at PGIM Fixed Income; and Gavin Smith, Head of Equity at QMA, to continue the group’s discussion on global Environmental, Social, and Governance (ESG) trends. During the conversation, the four explore how the ESG investment landscape will evolve over the next five years, PGIM’s commitment to providing clients with innovative solutions to ESG investing, and more.
To explore ESG at PGIM, click here.
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>> Today our topic is ESG. ESG is now firmly back in the public agenda. It has been in the private agenda for -- for a while. Data is getting better. Investor interest is clearly growing. How do you see this whole space evolving over the next three to five years? And let's start with you, Lisa.
>> I think that what we used to think as one of the main drivers of interest in ESG was the systemic risk that climate change posed to all investments and we're seeking to make connections between specific investments and a difference in climate change. I think what we've seen in the last year is that inequality is also a great systemic risk to financial markets and that we need to incorporate the addressing of inequality into how we think about ESG. And then the final thing that I -- that we -- and perhaps connected, that we are thinking about, as we invest in real estate, is ESG and R. And R stands for resiliency. So that means the ability of an investment to withstand shocks, be they climate shocks, social shocks, economic shocks. And there are some characteristics of resiliency that I think are material and important that we are beginning to incorporate into our investment -- not only our investment selection in real estate, but also the way that we manage the assets. And I think that's one of the real differences in -- in real estate and especially equity investment in real estate is that we don't just -- you know, ESG is not just about how we select investments. It's also about how we manage them. How we manage for social/environmental outcomes during our ownership period.
>> Gavin? Your view. Three to five years -- how does ESG evolve?
>> Sure. ESG going to be permeating all aspects of investor portfolios in the future. And I say that in terms of the contrast from where we've been where ESG has been more almost of this specific allocation or separate allocation within a broader portfolio. Now there's this expectation that ESG has to be influencing all aspects of equity portfolio and other asset classes. And then think of what this really means. Think within equities. Think in equities -- the big trend over the past decade. There's been significant allocations to passive, for instance, over the past decade from investors. Now they have to be working through this issue of -- how do I introduce ESG considerations into these passive allocations? They have to be working through these problems. They're also going to be working through how ESG can be influencing not just how [inaudible] fill allocations within that set price, but how ESG can be influencing my overall asset [inaudible] class decisions, strategic asset allocation. So it's going to be a situation where ESG is influencing all aspects of an investment portfolio. And this isn't trivial. This is something very complex to be tackling. And so what we expect is that the demand from investors is going to be on -- go beyond just specific ESG product. They're going to be looking much more for ESG solutions to help them navigate these very complex investment objectives they have as they move forward.
>> Great. Eugenia, the last word is to you. How do you think that this landscape is going to evolve over the next three to five years.
>> Yeah, [inaudible] look at the macro level, there will be a lot more focus on not just how ESG is impacting portfolios, but how our investments are impacting the environment and society. How what we are doing is actually -- is it positive for the overall sustainability of the world that we want to live in in the future?
>> Great. Thank you all very much for -- for joining this series of conversations. I thought that was a fabulous exchange of ideas on -- on ESG. I hope you will have taken away three things from this. First is that PGIM is deeply committed to ESG broadly, and that we've been investing significant resources in developing new and innovative ways of providing ESG products and services and solutions to our clients. Secondly, it's a complicated topic and no single solution works for different asset classes. So as you've seen today, how it works in fixed income or in quant or in real estate is completely different. But -- and this is the third and most important piece -- in each of our asset classes, it's deeply embedded into our investment process. And we're measuring and monitoring the impact that we're having. It's not just some high-level set of slogans. We're making a difference in the investments that we make around our beliefs in ESG. So with those three things, I want to thank you. I appreciate all of your time and patience as we went through this, and I look forward to seeing you in our next series.
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