Pedro Guazo, Representative of the Secretary-General for the investment of the UNJSPF assets, spoke at the Reuters Sustainability USA event, which brings together leaders in sustainability, business and finance.
Twenty years since the term ESG (environmental, governance and social) was coined among financial institutions, Mr. Guazo addressed how the financial industry “lost track” when those three letters started to overshadow building a responsible investment strategy.
“Last year, we sat down and committed to rethinking our whole responsible investment strategy. We were using the term ESG interchangeably and realized that as investors, what we have to do is stick to the basics and focus on responsible investing," he said.
“As institutional and responsible investors, we have to pay attention not only to the risk-adjusted returns, but we also need to consider ESG integration, screening, thematic investing and stewardship as part of our process. Good governance is considering all the risks and all the opportunities,” he said.
“In a nutshell, I think it’s about adopting the UN Principles for Responsible Investment and having a solid and sound strategy,” he added.
On investment challenges stemming from geopolitical events, Mr. Guazo noted that some challenges inherent to globalized financial markets cannot be avoided.
“While we all have diversified portfolios by regions and by factors, the problem arises when certain measures affect the competitiveness of the economy and, potentially, the financial sector. If transaction costs increase, that will make the real markets less effective and efficient, which could translate into inflation,” he said.
When asked about a potential recession, Mr. Guazo expressed optimism about labor markets and overall economic growth. His main fear is what is referred to as the “Invevitable Policy Response” by the PRI, where policymakers’ put in place efforts to curb carbon emissions creating impact in the real economy, which many institutional investors have not considered into their financial models.
“Policymakers might take very strong positions such as imposing carbon taxes that will directly impact all of us,” he concluded.
To learn more about UNJSPF’s responsible investment strategy, please visit our website.
Photo credit: Reuters IMPACT @ Sustainability USA, run by Reuters Events
