Looking to ESG-friendly companies as a starting point for sustainable investing is a mistake, Vontobel ESG specialist and client portfolio manager Marc Bindschändler told Citywire Switzerland.
Instead, he believes applying ESG criteria last is the key to generating alpha in a small ESG universe - something investors often worry about when approaching sustainable investing.
'We think it's a bad thing to start with ESG, because there isn't a strong enough signal to find the best performing companies,' he said.
'We integrate ESG at the end of the process - once we know a company is good quality and worth investing in, then we apply the ESG filter.'
Bindschändler noted that ESG strategies are widely available at Vontobel, with the first being launched in the 1990s. These strategies have evolved, first focusing on simply excluding non-ESG companies, and now focusing on impact assessment.
'Impact assessment is a new trend. Instead of just avoiding bad companies, now it's about giving money to companies helping the planet overcome its biggest problems. It's about mitigating climate change, resource scarcity and social inequality,' he said.
Furthermore, as trends and strategies change, Bindschändler said he sees no sign of ESG investing slowing down, even if it might seem like it sometimes.
'It goes in waves, a little bit. Before the financial crisis these funds were much in demand. Then, of course, it slowed down, and now it's starting up again because of this impact assessment trend.
'Everyone wants to allocate money where we need to improve, and over the course of about two to three years we've seen increasing demand.'