Institutional investors to tighten director scrutiny and seek clean energy investments in 2015, MSCI says
Investors plan to intensify their scrutiny of directors’ qualifications, increase their exposure to clean energy technologies and look to future infrastructure projects that defend against extreme weather or promote long-term growth, according to MSCI.
Institutions will also be watching closely for signs of labor unrest spurred by increasing automation and will look for new ways to generate a positive social impact on a larger scale, the index provider says in its 2015 ESG Trends to Watch report.
‘We head into the new year with the backdrop of swooning oil prices and (re)newed geopolitical fault lines, juxtaposed against a return to growth in the US and emergence of the next generation of tech darlings,’ writes Linda‐Eling Lee, global head of ESG research for MSCI, in the report. ‘In this cacophony, which ESG trends will be most top‐of‐mind among investors in 2015?’
Lee says improved data and analysis techniques have enabled investors to look beyond basic board structure and policy and individual performance of directors will come under increased scrutiny this year. She adds that gender diversity will also continue to be a focus for institutional investors as recent research has shown lower levels of fraud, bribery and governance-related lawsuits among more diverse boards.
‘Investors are increasingly factoring in considerations about both the depth and the breadth of directors’ experience,’ Lee writes. ‘In particular, we see institutional investors making more systematic efforts to assess the implications of two types of factors on company performance: industry expertise of individual board members and diversity of perspectives across the full board.’
Increasing concern over climate change will also prompt investors to better align their portfolios to take advantage of future growth in alternative energies and look for ways to achieve ‘scalable’ social impact this year. In addition, they will seek to increase their exposure to automation and the benefits in efficiency that can bring, while struggling to avoid the potential downsides, Lee says.
‘Investors with a focus on long-term value creation will need to evaluate not only the financial opportunities associated with these advances, but also weigh the unpredictable social consequences,’ she writes. ‘While upheaval in labor markets will likely dominate media attention, we should not ignore the potential that vexing social problems – dangerous work and unequal access to essential services are merely two small examples – could benefit from the coming technology advancements.’
