Clarity Clinic: Sébastien Thevoux-Chabuel, Comgest

In the latest Clarity Clinic, Comgest's head of ESG, Sébastien Thevoux-Chabuel, gives his view on the UN PRI's priorities, fund ratings and the next big thing for fund selectors

Q: What have been the priorities for Comgest in recent months and what are the areas of focus for the year ahead?

A: We put the responsible investment strategy in place about five years ago, but we started that journey 10 years ago. At first, it was predominantly something we were doing internally, for just a couple of clients. Initially, the financial analysts were in charge of producing the ESG research.

In 2012, our chief investment officer decided we needed core expertise, with a dedicated team responsible for this. We built a platform to be available for all portfolio managers and financial analysts. From 2013, with the creation of that dedicated team, we started integrating our ESG approach across our different investment strategies, starting with three of them – the Global Emerging Markets strategy, the European strategy and the Global strategy. These represented about 95% of all assets under management.

Then 18 months ago we decided to go further, incorporating the Japan strategy and the Asia ex-Japan strategy. That said, they were already partially covered, and some investment decisions were already being made with the help of the ESG analysts. But within the next few weeks, those two strategies will also be fully integrated from an ESG standpoint, meaning that 100% of our assets are now fully integrated.

Q: Comgest has taken the decision to publish the UN PRI’s assessment report of its ESG approach in a prominent position on the company website. Not all asset managers are as keen to do so. Why do you think that is important?

A: We have done that for the past couple of years. As soon as we had one transparency report and one assessment report in 2014, we thought it made sense to show how we were being assessed and what we are disclosing to the UN PRI.

When you become a signatory to the PRI, there is a strong commitment to comply and live up to the six principles (see here). Transparency is one key theme that goes through those six principles. We have been quite engaged with the PRI throughout its consultations.

Q: How aggressive do you believe the PRI should be in enforcing the expectations of membership?

A: When there was that consultation two years ago about how the membership should evolve, we were quite vocal that there should be many more people excluded from the list of signatories if they are not up to what they signed up to.

From day one, there has been that dilemma at the UN PRI as to whether they should look for a very broad membership, with all the benefits of having a lot of people on board, or focus on the quality and credibility of the initiative by being a bit more demanding in terms of membership requirements to join the club.

Q: By publishing your latest PRI assessment report, it means we can see the areas where your scores dropped, compared to the previous year. There were a couple of places where this was the case. Will you be changing your approach in these areas?

A: We are well versed with the UN PRI’s methodology. There are things that we agree with fully, and if it makes sense to us, we will consider changing what we are doing. But, some of the things that make sense from a PRI level may not, we feel, apply to us.

One of the things was when it comes to engagement where it was suggested we may not be doing enough engagement to warrant a very high score. But, there is only so much engagement we can make.

Looking at the 2017 numbers, we had 67 corporate engagements across all companies that we own, but if you look at all companies we owned, across the three strategies, there were maybe 100 companies. So, engaging with more than two thirds of those companies could be seen as a significant endorsement of our responsibility as shareholders. But because of the way the methodology is built by the PRI, it doesn’t make us look great. Obviously, we are not going to hold three times as many engagement meetings with companies just for the sake of having a good score on the PRI’s methodology.

Q: What do you think about the methodologies and approaches adopted by ratings agencies more broadly?

A: In all methodologies, be they from the PRI, MSCI, Sustainalytics, Morningstar, sometimes you come out of those more favourably, and sometimes a bit less favourably, but that is certainly not a reason why we would change what we do, when we think our approach is the best thing for clients. That is why we think it is quite important to be engaged with the PRI as well. All signatories should have a say on what the PRI is becoming.

Q: What have you raised with the PRI through your recent engagement?

A: We are asking the PRI to be a bit more stringent, requiring that companies provide evidence to support their responses in the questionnaires. There should be checks and balances.

Q: Given the complexity of the methodologies, do you think that fund selectors understand the subtle differences between methodologies and how responsible investment approaches are graded?

A: Not always. As time goes by, fund selectors will become more knowledgeable and begin to understand some of the limitations in the methodologies. Even if we start from a low base, more people are beginning to understand scoring methodologies and scoring systems. I am quite confident that in a year or two, it will be much easier for fund selectors to sift through those different systems, and some will have even developed their own systems. None of the systems are perfect, but as long as you know the limitations, you are fine.

Q: Which ratings system do you prefer?

A: If I had to pick one, it would be the one from the PRI because as it is the most comprehensive way to assess the work of an asset manager. There are a lot of different metrics and angles to measure that. If you look at some of the others, the inputs that they use are not good, perhaps, as they should be.

Q: What is your view of dedicated SRI funds?

A: I am true believer that the world doesn’t need more SRI funds, but it does need more responsible investors. That is something you can take into account through the PRI but not through some of the other providers.

Q: What is it about SRI funds that you don’t like?

A: I can understand why a very large investment house may want to have as many products as it can, covering all the different segments of the market. But, when it is a marketing strategy motivating a firm to launch fund, and not the true belief in something (or purely an intent to gather assets), that means your approach is a little more questionable. For instance, how come an investment house can, on the one hand, claim that ESG enhances performance and on the other hand, have funds where ESG is entirely absent. That doesn’t make a lot of sense to me. We have seen a Tsunami for ESG interest across all asset managers.

Q: What do you think is the next big ESG thing for fund selectors?

A: Given the nature of their client base, I would say that interest in impact investing will keep increasing. Even if it can be tricky to demonstrate the impact that some funds may have, I see many more fund selectors trying to demonstrate there are good products out there. There is, obviously, some work to be done on metrics, but we are not that far from having standardised metrics on impact.