A BNY Mellon executive warned that fund managers may not be doing enough to reflect environmental, social and governance-related missions in sustainable investments, and should do more to demonstrate those values to clients.
Roman Regelman, the bank’s CEO of asset servicing and head of digital, said during a remote conference Friday that investment managers should rely on data and technology to help clients gain more visibility into ESG portfolios. Doing so could help financial firms stand out, especially as ESG continues to be a murky area without clear international standards.
“ESG strategies are all over the world now,” said Regelman during the 39th Annual BancAnalysts Association of Boston Conference. “But can you demonstrate to me that your ESG strategy is really what it says it is?”
With investment managers largely determining their own criteria on what constitutes an “environmental, social, and governance investment,” the range of ESG products varies widely from bonds that fund clean energy and other environmentally friendly projects to security bundles that screen out the most objectionable companies with no specific mission to promote positively impactful ones.
“At the heart of our [ESG investment] app is demonstrability,” said Regelman. “Someone can go into our app and figure out what they are getting, what they are doing.”
The New York-based bank, which is the world's largest custodian bank with $38.6 trillion in assets under custody or administration, released a report in May flagging concerns about greenwashing in that investment space. Investors surveyed by Capital Markets Policy senior director Matt Orsagh said they didn’t have a clear definition of ESG.
“There was one concern we heard everywhere we went: that there is no agreed-upon definition of what ESG means, so funds may be marketing something that may not be in line with what a client wants,” Orsagh told Bank of New York. “Investors have to do their own homework to know if something that is labeled ESG is really right for them.”
BNY Mellon said it is working to develop more universal standards around these investments. The Norwegian sovereign wealth fund, one of the few entities comparable in asset under management size to BNY Mellon, is undertaking similar efforts.
“Without substantial improvements, better disclosure and higher quality information from the more than 250 data vendors in the space, the entire ESG movement runs the risk of returning to a momentary marketing fad, say some experts in the field,” wrote Imogen Rose Smith, founder of investment firm Combinate Capital for BNY Mellon.
Regelman also touted Bank of New York’s ability to customize conscientious investment strategies to a client’s interests, whether that’s social justice, climate change, gender diversity or something else.
He said the ability to direct investments toward specific causes is more meaningful than a holistic environmental, social, and governance score, which many investment firms use.
The bank’s chief financial officer, Emily Portney, said at the conference that BNY Mellon has benefited from a “flight to safety” during the pandemic, as investors look for stable, conservatively managed funds. She also mentioned that the bank recently submitted documents to the U.S. Federal Reserve on its ability to manage a stress test, and “eagerly await” feedback in the hopes of being able to resume share buybacks.